Online retail revolution?

The first half of January saw numerous UK retailers releasing data showing a decline in sales over the key Christmas holiday, and subsequent January sales period.  While one explanation for this is that fears of impending economic slowdown have led to belt tightening, the same trend was not seen among online retailers.  Indeed, UK online sales totalled around 15.2 billion pounds (30.2 billion dollars) in the final quarter of 2007, bringing the total for last year as a whole to 46 billion pounds out of total retail sales of 253 billion pounds -– over 50% higher than in 2006.

This suggests that, in the United Kingdom, and almost certainly further afield, online retailing is becoming more prevalent.  Indeed, forecasts suggest that internet shopping could account 50% of all retail spending within five years.  This could fundamentally change the way people shop.

Internet shops never close, meaning that retailers can take advantage of what typically would be dead periods.  For example, major UK retailers, including Marks and Spencers, Comet and Dixons ran online promotions on Christmas Day, which brought in substantial sales.

Show your wares

The internet can allow small specialist retailers, particularly in sectors such as food, to reach a broader customer base.  This is beneficial to what would otherwise be extremely small 'local' businesses, while also increasing consumer choice.

Birth of a new industry

The increasing range of goods and outlets in the online retail sector has facilitated the growth of price comparison websites, such as Kelkoo, which allow consumers to search for the lowest prices of goods they wish to purchase.  Use of these sites is likely to increase, ensuring that competition remains fierce and consumers get a good deal.  Because shoppers do not have immediate access to this kind of platform while shopping at conventional outlets, and as retail costs increase, there is likely to be a growing cost differential between online and conventional shops.

This raises the questions of whether online shopping, though no longer in its infancy, finally is about to revolutionise retailing.  The answer probably is that it will not:

• The most successful online retailers are those that also have a dense network of conventional stores.  Examples in the United Kingdom include Tesco, Sainsbury’s and John Lewis, all of which have used conventional outlets to promote online sales and vice versa.  These are likely to be the fastest growing players as the online shopping market expands.
• While there will be niches, and giant online retailers, such as Amazon (which now offers food shopping in the United States) will continue to expand, and compete successfully, consolidation is likely to continue, with successful small retailers being acquired, and sometimes subsumed by their larger cousins.