Summer 2008

'Internet retailing seems to be laughing in the face of the economic slowdown.' So says Neil Saunders, director of consulting at Verdict Research.

His comments are underlined by two new reports from the organisation, one from its consulting division and one from the main company. First Verdict Consulting predicted that in 2008, online retail spending in the UK would grow by 32 per cent, compared with offline sales growth of just 1.2 per cent. That's a 25-fold greater growth rate.

Now Verdict's UK e-Retail 2008 report has expanded on this, adding that online spending is growing at its fastest rate for six years. It says 2007 online spending on retail purchases rose by 35 per cent to £14.7 billion – almost ten times more than the growth of 3.6 per cent in the overall UK retail market.

According to the new Verdict report, the online market expanded by over a third in 2007, driven by a 5.9 per cent increase in internet users (to 33.1 million) and a 24.7 per cent increase in online shoppers (to 22.6 million). Shoppers were purchasing more regularly, it says; the average number of web 'trips' was 16.9 times per year, an increase of 2.7 on 2006, and each consumer spent an average of 7.8 per cent more than in 2006.

 

Verdict Consulting says online retailing is now worth £19.5 billion, and accounts for around 7 per cent of all retail expenditure. As a result, an online presence will become a much more important differentiator between retail success and failure, it argues.

As ever, Verdict's figures differ from the even higher growth rates quoted by IMRG, the online retailers' organisation, which includes various 'soft' online sales that are omitted by Verdict. But like for like, both organisations reflect a parallel growth pattern.

Verdict Consulting draws a contrast with the figures for ten years ago, when it says online retail sales were worth £362 million, representing 0.2 per cent of all retail expenditure. Since then, it says, internet sales have increased by well over 5,000 per cent to become a significant part of the retail economy.

Cumulatively, Verdict says online retail sales have grown by 30.9 per cent over the past five years, while offline retail sales have grown by 2.2 per cent.

The organisation goes on to predict that online sales will account for almost 14 per cent of all retail expenditure by 2012, representing around £44.5 billion.

Seventy-four per cent of consumers believe the internet is better than 'regular shopping' for finding cheaper goods, Verdict reports. Sixty-seven also believe it is better for comparing prices, 65 per cent for browsing and 63 per cent for convenience.

Verdict says there will be a continuing role for most retailers on the high street. 'For most retailers the key to future success will be multi-channel retailing: the combination of physical shops and an internet presence with strong links between the two.'

However, it takes a relatively bleak view of the position for retailers dependent on digital products. In Neil Saunders' words: 'When you look at a sector like music and video, where potentially over half of spending will be made online by 2012, you have to ask yourself whether all the shops we have now will be required in five year's time.

'The answer to that is a clear *no',' he adds. 'It doesn't really matter how those shops differentiate themselves, we just won't need as many of them.

'Having an internet presence is now more important than ever,' Saunders concludes. 'Any retailer than doesn't have one is essentially shutting the door on a very lucrative stream of growth. The future for successful retailers isn't about choosing between bricks or clicks, it's about bricks and clicks.'