Despite signs that the economy and retail sales are both starting to slow, online retail continues to power ahead unabated, according to latest research from retail analyst Verdict and the most successful retailers going forward are likely to have both internet and physical sales. This year, 2008, online retail spending will grow by 32 per cent compared to offline sales which will see minimal growth of 1.2 per cent. Online retailing is now worth £19.5bn 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.

The growth in online sales for 2008 will be slightly above average online growth of the past five years; comparatively, offline growth this year will be well below the average of the past five years.

“Internet retailing seems to be laughing in the face of the economic slowdown,” said Neil Saunders, Verdict’s director of consulting. “While more muted consumer sentiment may have a slight downward impact on online growth rates, the internet seems much better placed than physical locations to weather the storm.”

The superior rates of growth will mean that the internet will continue to take a larger share of the retail pie and Verdict forecasts that by 2012 online retail will account for almost 14 per cent of all retail expenditure - in cash terms some £44.5bn.

One of the factors behind the continued success of internet retailing is its ability to deliver in terms of price - something which is becoming increasingly important to consumers who find their disposable incomes squeezed by rising utility, tax and mortgage bills.

According to Verdict’s research, shoppers believe that compared to physical shopping the internet is a far more effective channel for searching out and finding low priced products. Consumers also believe that the internet is more convenient and better for browsing: something that becomes more significant as the costs of travelling to shopping locations increases as the price of fuel marches upwards.

The continued boom of the internet will only add to the pressure faced by physical locations which, in addition to slower levels of spending growth, also have to contend with a significant amount of additional space coming into play over the next five years. Verdict forecasts that by 2012 around 26.9 million square feet of selling space will be added, increasing consumers’ choice of where to shop but also meaning more competition for all physical retailers.

However, all is not lost for physical locations and the outlook is not as gloomy as often reported. The key for physical retailers is to ensure that their stores are interesting and entertaining for consumers and that they are able to offer good levels of customer service. These are the things that will enable physical stores to hold their own against the internet.

“Having an internet presence is now more important than ever,” said Saunders. “Any retailer than doesn’t have one is essentially shutting the door on a very lucrative stream of growth. And in this current environment there are very few retailers who can afford to do that. As such, the future for successful retailers isn’t about choosing between bricks or clicks, it’s about bricks and clicks.”

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