E-tail can provide an antidote to slow growth on the high street

Figures from traditional sales outlets may have hit a brick wall but retailers wishing to take advantage of the latest growth trend must look to improve their online presence, says Richard Hyman

As retailers begin to come to terms with the economic realities of shopping today, they need to deal with the phenomenon that is e-tail. Is it a threat or an opportunity? Against the background of slower retail sales growth, negative selling-price inflation and rising costs, the internet is exerting a disproportionate and growing influence on traditional retailing.

Last year, online retailers accounted for almost half the cash growth in total retail spending, with sales increasing 15 times faster than the retail average. Traditional retailing is showing all the signs of an industry that has hit the brick wall of maturity but online shopping is still embryonic. Though its share of retail is still small, meteoric growth is sending shockwaves throughout the wider retail sector as consumers of all ages transfer their purchases online.

During 2005, overall retail spending grew by just 1.5%, the slowest rate of modern times, yet spending online surged ahead by 28.9%, at over 15 times the pace of all retail. Indeed, rather than slowing down, the growth of online spending actually accelerated from the 27.4% achieved in 2004. This means that of the extra &£3.9bn spent by consumers on retail in 2005 compared with 2004, almost half (&£1.8bn) went to online retailers.

Verdict’s latest research shows that consumers bought &£8.2bn of goods online in 2005, equivalent to 3.1% of total retail spending, not far short of the &£9.4bn total sales achieved by department stores. Clearly, 3.1% is a modest figure and certainly lower than some of the hyped numbers being bandied about, but it underlines just how far this still small channel has come in influencing its much larger and better established traditional retail media.

For the most part, e-tail is producing a switch in sales from mainstream channels rather than generating incremental business. The bulk of e-tail is now in the hands of mainstream retailers who are rapidly adopting multi-channel strategies to reach their customers. The challenge for them is to make the economics of additional costs, and little in the way of more sales, add up. Few mainstream retailers today can afford to ignore the internet/ they must be in the game to have a chance of winning. It must be regarded as an opportunity or it will undoubtedly become a threat.

Our research suggests that online retailing played a significant role in pushing one third of the &£3bn of the key retail casualties in 2005 towards administration. Argos’ victory over Littlewoods’ Index in the battle to be the leading catalogue showroom operator was in part due to its superior multi-channel capabilities; MVC failed due to intense price competition that was in part driven by online retailers and computer retailer Tiny became unable to compete with prices driven lower by the likes of Dell.

Today one in four UK consumers buys goods over the Net. The number of online consumers stood at nearly 15 million in 2005, up 25% on 2004, while over the past year the number of consumers with broadband access has almost tripled to nearly 10 million.

One of the most significant indicators of how far e-tail is progressing is its demographic make-up. Growing maturity is seeing women emerging as the key customers: they dominate all other forms of shopping and a non-negotiable requirement for the Net to become a truly serious shopping channel was to gain their acceptance.

Women account for the majority of online spending in clothing and footwear, DIY, food and grocery, furniture, health and beauty and homeware. Men outspend females in books, music and video and electricals.

The other major step forward has come in attracting significantly more business from older consumers. These “silver surfers” are the fastest-growing consumer group and offer online retailers the greatest potential. The number of 55-plus internet users doubled to 2.7 million in 2005. The impact of online retailers on the rest of retail goes far beyond the sales they generate. E-tail is redefining how people select retailers, enabling them to choose products that precisely meet their requirements, empowering them to find the lowest-priced product and allowing them to shop at a time that suits them.

The internet is not going to replace the traditional shopping environment, but represents an excellent additional route to an increasingly demanding and often elusive consumer. This makes online retailers far more formidable competitors to high street retailers than their current sales suggest.

Latest from Marketing Week

NOT REGISTERED? IT'S FREE, QUICK AND EASY!

Access Marketing Week’s wealth of insight, analysis and opinion that will help you do your job better.

Register and receive the best content from the only UK title 100% dedicated to serving marketers' needs.

We’ll ask you just a few questions about what you do and where you work. The more we know about our visitors, the better and more relevant content we can provide for them. And, yes, knowing our audience better helps us find commercial partners too. Don't worry, we won't share your information with other parties, unless you give us permission to do so.

Register now

THE BEST CONTENT

Our award winning editorial team (PPA Digital Brand of the Year) ask the big questions about the biggest issues on everything from strategy through to execution to help you navigate the fast moving modern marketing landscape.

THE BIGGEST ISSUES

From the opportunities and challenges of emerging technology to the need for greater effectiveness, from the challenge of measurement to building a marketing team fit for the future, we are your guide.

PERSONAL AND PROFESSIONAL DEVELOPMENT

Information, inspiration and advice from the marketing world and beyond that will help you develop as a marketer and as a leader.

Having problems?

Contact us on +44 (0)20 7292 3711 or email subscriptions@marketingweek.com

If you are looking for our Jobs site, please click here