Much more widespread use of low-cost broadband services is a leading reason for the boom in online shopping. Of the 3,000 consumers surveyed for a new Verdict Research report, two thirds of the online shopper population (which now numbers 18 million), said that they have broadband access and shop online more frequently because of it.
Retailer investment is also proving pivotal in growing the market. Over the past 12 months, a host of physical retailers including the Arcadia brand sites, Dunelm, Ikea, Oasis, Superdrug, Waterstone’s and Wickes have launched new transactional websites. In addition, many existing retailers have greatly scaled up their offers including Asda, B&Q, M&S, Tesco and Woolworths.
However, not all retailers have been convinced by the virtues of launching online; a significant number are still resisting the urge to jump on the online bandwagon. There are three types of retailer that seem set to stay out of the race to build online sales: food retailers – where the infrastructure cost associated with an online launch and the strength of competition act as deterrents, value retailers (such as Matalan, Primark and Peacocks) which have a business model that depends on driving high sales densities from their stores, and many smaller specialists, which have limited scale, which makes it challenging to finance major online infrastructure. For these retailers the case for major investment in transactional websites is far from proven.
Even with some retailers staying out of the market, online sales in the UK are still set to almost triple in value – in 2011 Verdict expects online spending to reach GBP28.1 billion (equivalent to 8.9% of all retail spending), as the shopping medium becomes more integral to consumers’ lives.
The growth in spending will be driven by consumers shopping online more often, rather than the result of a further expansion of the online shopping population, which is expected to grow much more slowly over the forecast period. By 2011, the typical spend of an online shopper will grow to GBP1,056 per year (up from GBP606 in 2006) with the clothing & footwear, DIY & gardening and food & grocery sectors achieving the fastest growth.
Despite the scale of this opportunity, retailers must take care not to jeopardize the trust of their customers. As shoppers spend increasing sums online, they need greater assurance that their financial details are safe, particularly in light of the growing number of phishing scams, where customers have in error divulged personal financial information to third parties. The introduction of chip and PIN online should help to allay security concerns, but smaller retailers that lack the expertise to develop their own in-house payment and security systems should consider outsourcing this process to ensure consumer uptake.
In addition, many retailers could do much more to promote their sites effectively. Many well-known retailers do not appear in search engines when a shopper searches for products they sell, even though Verdict’s research indicates that search engines are the most popular way of finding a retailer’s website. This suggests that retailers should consider paying more for search engine optimization even if this requires a shift in advertising budget from traditional media.
Many retailers also have a long way to go to create a truly seamless multi-channel operation. Over the last year, Tesco and Woolworths have both launched catalogue and online offers, while Home Retail Group (parent to Argos and Homebase) has enhanced its multi-channel offer, allowing customers a much more flexible service.
Viewing channels in isolation is more a recipe for failure than for success, and a seamless fusion needs to be achieved between both physical and online channels. While creating a multi-channel operation is by no means an easy task, the rewards for those that successfully attain this feat will outweigh the investment.
