News

Verdict Research e-Retail 2006: Online shopping accounts for half of retail sector growth (21/2/2006)

A new report, e-Retail 2006, from retail analysts Verdict Research, part of the Datamonitor Group, reveals the true strength of the online retail sector. Last year online retailers accounted for almost half the cash growth in retail spending, with sales increasing 15 times faster than the retail average. Though onlineās share of retail is still small, its meteoric growth is sending shock waves throughout the wider retail sector as shoppers of all ages transfer their purchases online.

Last year 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 slow 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.

In 2005 Verdict estimates that consumers bought £8.2bn of goods online, equivalent to 3.1% of total retail spending. This means that sales of online retailers are now not far short of the £9.4bn total sales achieved by department stores.

Verdict argues that the impact of online retailers on the rest of retail goes far beyond the sales they generate. ćE-retail is redefining how people select retailers, enabling them to choose products that precisely meet their requirements, empowering them to find the lowest price product and allowing them to shop at a time that suits them. This makes online retailers far more formidable competitors to high street retailers than their current sales figures suggestä, says Nick Gladding, Senior Retail Analyst and author of the report.

The numerous advantages of online retailers add to the pressure on beleaguered high street retailers. Verdict believes that online retailers played a significant role in pushing a third of the £3bn of the key retail casualties in 2005 towards administration. Argosā victory over Index in the battle to be the leading catalogue showroom operator was in part due to its superior multichannel 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.

Consumer research conducted by Verdict shows that one in four UK consumers now purchase goods over the Internet each year. The online shopper population stood at 14.6m in 2005, a 25.5% increase on the previous year. Over the past year the number of shoppers with broadband access has almost tripled to 9.6m and this encouraged more frequent and widespread online shopping. Intensifying competition among Internet Service Providers and the introduction of new technology, coupled with greater availability has encouraged consumers to trade up from dial-up connections to broadband.

Silver surfers are the fastest growing shopper group and offer online retailers the greatest potential. The number of 55+ Internet users nigh on doubled to 2.7m in 2005 as they begun to realise the potential of the Internet. The rapid increase in Internet shopping among this age group is reflected by a 46.7% rise in spending to £458 per head. Despite these impressive figures, Verdict believes there is further potential for growth, with just one in six over 55s currently shopping online, compared to an average of 29.7% across all age groups.

The 35-44s remain the highest spending age group, accounting for £3 in every £10 spent on the Internet. Spending in this age group amounted to £2.3bn in 2005, with average expenditure per head of £675. Indeed the 35-44s account for the largest share of expenditure in five of the eight online retail sectors. With the highest online penetration of any age group at present, further growth in this age group is limited compared to other age groups where penetration is lower.

The research shows that women continue to spend more than men online, but the gap is narrowing. The typical female shopper spent £579 in 2005, ahead of the £543 spent by males. This £36 gap indicates that the spending differential between the genders is closing with average male spend increasing by 5.2% compared to 1.7% among females over the past year. Despite this emerging trend females are the most avid online shoppers. They account for the majority of online spending in clothing footwear, DIY, food grocery furniture, health beauty and homewares, while males outspend females in books, music video and electricals.

www.verdict.co.uk