Online retailers to cast net wider

By 2011, virtually everyone under the age of 55 will have used the internet to buy goods and 70 per cent of the UK shopping population will regularly be buying goods online - compared to just over 50 per cent of consumers today.

Consumer behaviour, both expected and unpredicted, is driving the online retail market to new highs, according to research by PricewaterhouseCoopers LLP.

The value of the online market could reach almost £35 billion, nearly three times current spending, by 2011. The projection is based on the PwC survey of 1,500 consumers and analysis of online penetration by category of goods. In four years time internet shopping is likely to account for up to 10 per cent of the entire retail market and will still be increasing its share.

According to PwC research and interviews with industry leaders, the growth of the online retail channel over the next four years will be fuelled by three key factors. Firstly, the proportion of the shopping population that is web-savvy will increase as today’s young people become active consumers and as broadband penetration continues into UK households. Secondly, within each age group there is a sizeable proportion that intends to start shopping online in the near future. An extra 20 per cent of 55-64 year olds said they will be shopping online in the next few years compared to 39 per cent shopping online in that age group today.

The third key driver will be the increasing confidence of current shoppers, who plan to move their online spending into more varied product categories and spend more per category. According to the survey, 25 per cent more online shoppers will be buying food and groceries online (currently 38 per cent). Alongside the other online staples of CDs and books and white goods, these key drivers will generate up to seven million more online consumers over the next four years.

Mark Parry, partner, PricewaterhouseCoopers LLP, said: “Our research shows that there is no longer such thing as a typical online consumer: five years ago the net shopper was relatively wealthy, young and male but today’s online consumers are far more reflective of the general shopping population. The reality of online retail is finally catching up with the early hype, with online sales for 2007 predicted to grow by almost 30 per cent on last year’s high. All indications point to double digit growth in the years ahead. The UK retail sector is an industry in transformation.”

Understanding what makes people want to shop online is an essential part of the picture. Having a cohesive online and store-based offer is now more important and more complex than ever.

• price is still the main attraction - rated by 70 per cent of survey respondents as their main reason for logging on to buy goods

• convenience is also a motivator for almost seven in ten shoppers who find online shopping quicker and less hassle than visiting the high street

• Two-thirds said they found it easier to find what they were looking for online

• Sixty per cent valued the 24-hour access offered by the internet

PwC indicates, however, that there is still a place for stores in the retail mix because the drawbacks faced by online shoppers seem to mirror the virtues of high street retailing. However, given falling sales per square foot and rising costs, retailers will need to understand how to manage their store portfolios for a profitable future.

• More than 60 per cent of consumers still want to try before they buy. Technology has come a long way, but when it comes to tactile qualities it is still no match for shopping in store

• Nearly half said they liked the experience of high street shopping ·

• Four in 10 consumers valued human interaction. Older customers in particular appreciated the service and sales assistance in stores

• The security of online shopping was also raised by 20 per cent as a concern

Mark Hudson, retail and consumer leader, PwC, said: “The growth in the UK’s online retail channel has consistently exceeded expectations and in five years’ time, the value of online shopping will still be growing. However there will still be a role or bricks and mortar in the retail mix. Even in 2011, online retail will only represent about 10 per cent of the total market value. “The growth of online retail means that conventional retailers will be facing a double whammy in terms of cost. Consumers like to shop online primarily for purely functional reasons - it is cheaper and more convenient. Softer, people-related motivations attract them to the high street. Retailers will be working harder for customers: they will be making less money in the online space and competing more heavily in high cost areas to improve the shopping experience in their stores. More than ever, having the right customer proposition and flawless execution will be critical to deliver the necessary sales growth.”

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