Online spending bucks recession

By: Jeff James

Listed Under: Top Story

Published: Wednesday, July 23, 2008

UK shoppers spent over £26.5billion online in the first six months of 2008 despite the credit crunch, up 38 per cent on the £19.2billion recorded for the first half of 2007, according to new figures from the Interactive Media In Retail Group Capgemini e-Retail Sales Index. The report reveals that for the first half of 2008 17p in every pound was spent online - roughly equivalent to half of all supermarket sales and larger than all retail sales for clothing and footwear.

The index shows that online sales are proving resilient to tough trading conditions as frugal shoppers seek to make the most of their available income away from the high street. Technology consultancy Capgemini and global e-retail
industry body IMRG predicts that online growth will remain strong for the rest of 2008. This will be driven by rising fuel costs, falling disposable income and smarter consumer shopping habits.

According to the index, online spending has followed similar seasonal trends to previous years, with growth in online sales falling sharply in January (-16.5%), picking up in the spring and declining towards the summer. This year, the dip in growth for June (-5%) is significantly more pronounced than 2007. This slowdown is reflected in year-on-year growth, which has declined for June for the first time since 2005 - indicating that whilst still growing rapidly in comparison to the high street, online spending is not immune to the credit crunch.

Says Mike Petevinos, head of consulting for retail for Capgemini UK: “Whilst online retail is not immune to the credit crunch, it is showing greater resilience than the high street. The online channel continues to grow its share of retail spend thanks to the traditional drivers of convenience and choice, but these drivers appear to be magnified by the current economic environment. Convenience has a sharper edge in a world of soaring fuel prices and the ability to research and make more informed choices in a time of heightened price sensitivity is a key advantage of the online channel.

"We predict between 30 per cent and 50 per cent of all retail will be online in the next five years as new drivers, such as sustainability, are added to the mix. This is because as online reaches 20 per cent of all retail sales, retailers experience a tipping point which forces them to seriously rethink the future viability of their business model. We have seen this happen for books, music/DVDs and electricals and as the industry as a whole reaches this tipping point in 2008 more categories
are sure to follow.”

Over the past six months, IMRG and Capgemini have seen a pronounced increase in sales at the top end and bottom end of the online retail market, indicating that consumers are shopping smarter - buying everyday items at discount retailers, whilst adding a touch of luxury with select items from high-end retail outlets. This is further backed up by recent research that found that UK internet visits since June 2007 to mid-market online retailers have fallen by six per cent, while visits to lower-end retailers, such as Primark, have increased by 12 per cent and visits to high-end retailers, including Harrods, increased by 14 per cent over the last 12 months.

Says James Roper, chief executive and Founder of IMRG: “Online shopping growth continues to outperform the high street as tight budgets and poor weather keep people at home where they can shop online for bargains. Clothing and footwear sales were the biggest losers in physical stores in June, with sales either flat or lower than last year despite heavy and widespread discounting. Online, however, they were big winners; internet clothing sales were up 32 per cent, while lingerie sales rose by 37 per cent and footwear 38 per cent."

Online retail is benefiting from a general desire to shift to more sustainable shopping patterns. According to research from the IMRG, 56 per cent of people believe shopping online is more environmentally friendly in comparison to the high street. In turn, Capgemini’s recent ‘Future Supply Chain’ report reveals that many retailers are examining the possibility of sharing deliveries and merging supply chains to combat rising fuel costs and 'green' their business models.

Says James Roper: “Smart high street retailers across all categories are now using the internet to cope with the challenging and changing market conditions. A growing number of them are using their stores to enhance their online customers' experience, for example by enabling in-store pickup and returns, which often generate supplementary sales, as well as much-needed footfall.”