Although now more than 10 years old, e-tail is still in its infancy. So is the sky the limit, or are we approaching the peak? Charlotte Dennis-Jones looks into the future of e-tailing

In 1995, the concept of e-commerce didn’t even exist in most people’s minds. It was only with the launch of Amazon and eBay in that year that its popularity started to gain momentum. And what a difference 12 years can make.

In little more than a decade, the face of retail has changed and many are capitalising on the enormous gains to be had. At fashion e-tailer Asos, for example, profits rocketed 111 per cent last year. Meanwhile, at Marks & Spencer, web sales shot up more than 60 per cent in the last financial year to more than£100 million. M&S received more than 55 million hits on its site – 30 million more than the previous year. Few could have forecast the phenomenal success of online shopping. The question is: where does it go from here?

The very fact that e-commerce is still in its relative infancy means it remains an enigma. Predicting its popularity is proving impossible because, every year, forecasts have fallen short. Last year, online sales smashed the£11 billion mark – a billion more than anticipated.

When Topshop relaunched its web site last year, the then brand director Jane Shepherdson told Retail Week that the international opportunities afforded by a revamped online business were enormous. “The web site could be massive – potentially bigger than even our whole UK Topshop business within two years,” she said.

However, other retailers are adamant that their high street presence will remain dominant. HMV chief executive Simon Fox says: “I absolutely do not think our online business will overtake that of our stores. It comes down to the in-store experience, spontaneity and the ability to browse more easily than you can on the web site. These factors mean that, for many people, the high street is still and will remain a preferred route.”

Mosaic Fashions deputy chief executive Mike Shearwood agrees. “There is certainly a cultural shift but at the end of the day, people still want the fashion experience. It’s instant gratification and you can’t get that on the web. It will be about an evolution, rather than a revolution,” he says.

New Look’s transactional site is due to launch later this year. Strategy director Sean Wills says: “Online shopping has been a phenomenal explosion and I think there is more scope. However, I don’t think it will ever be bigger than our offline business. There is an element of shopping at New Look that is social and online shopping can’t replace a Saturday trip.” He does, however, believe the retailer’s web sales could exceed that of its five biggest stores in the long term.

Nevertheless, retailers ought to be worried by the fact that Footfall Index figures reveal a year-on-year 3 per cent to 5 per cent decline in a market that will not get any bigger. Are many being too optimistic?

PricewaterhouseCoopers (PwC) transaction services partner Mark Hudson believes so. He is convinced that while there will always be a need for the high street, further down the line retailers will require a “significantly reduced number of stores”. PwC anticipates that by 2011 the online retail market will be worth£36 billion and Hudson estimates that about 80 per cent of people will shop online.

Saturation point

PwC’s interviews with 1,500 consumers also shed light on which sectors are likely to grow fastest online (see box). Interestingly, clothing and footwear, books, CDs and DVDs will grow far more slowly than categories such as electricals and grocery.

Crucially, most people believe there will come a time when online shopping reaches saturation point. When that might happen, though, no one knows. “Growth has consistently exceeded expectations and it’s growing faster than people thought, but I don’t think it will carry on growing and growing. There will be a point at which it levels off,” says Hudson. Former Net-a-Porter marketing director Martin Bartle, who is managing director of consultancy 270 Degree Marketing, also holds this view. “It will level off, but there are so many factors it’s not clear how long that will take,” he says.

Woolworths head of commercial multichannel retailing Andy Hicks adds: “Online retail will continue to grow as more people become more comfortable with it and as technology and economies of scale make it easier for retailers and shoppers. However, it is impossible to maintain treble-digit growth figures year after year.”

And because that saturation point will arrive at some point, retailers need to start thinking more than ever about their integrated multichannel strategies. The balance of high street, internet and catalogue sales will, over time, even out and those retailers that can find the perfect model for all three will lead the pack. It is telling that both John Lewis and Tesco – whose profits are the envy of many of their competitors – both place great emphasis on the integration of all three types of business.

So, while online is an integral part of the retailing future, focusing on it at the expense of other channels could prove fatal. Future Laboratory trends director Tom Savigar explains: “It’s not about on- or offline retailing, it’s about inline retailing. If you imagine all the different media devices in front of you – a mobile, laptop, TV, computer – you’re dealing with someone who doesn’t want to feel disconnected. It’s not about a web site and it’s not about a URL. It’s about the bigger picture. It’s about cross-channel retailing. Consumers will want to be able to access that retailer wherever and whenever they want.”

Baugur e-commerce adviser Michael Ross says that, ultimately, retail is about having the right products at the right price. “Nothing about online changes that,” he maintains. “Once retailers have a good proposition, the thing that will differentiate them will be their ability to manage that across all of their channels.”

Fox says that HMV plans to do just that. “We have to make sure the online and digital experience is seamless, so it’s channel-agnostic. Our next-generation stores will aim to bring these worlds together,” he says.

Bartle adds that plenty of pure-play retailers have given much thought to opening stores. “The more routes to market you have, the better,” he says.

Given this, it is surprising so many retailers have yet to launch transactional sites. Wills readily concedes that New Look has missed an opportunity by not launching its site until now. Upmarket fashion group Hobbs’ site will go live at the beginning of November. However, managing director Nick Samuel does not believe it has been slow to launch, given that those in its peer group, such as Karen Millen and LK Bennett, have only recently launched and Phase Eight has no transactional site yet. “It’s the younger people who are more up to speed with shopping online and they aren’t our core customer,” he says.

Some of the Inditex brands – most notably Zara – have no clear plans to launch one at all. One retail director believes that in Zara’s case, the Inditex business model doesn’t lend itself to online retailing because no stock is held in its warehouse. “If you wanted to buy something online one week, it would almost immediately be out of stock,” he says. “It’s smashing a lot of people on the high street, so it could just be that it focuses on that and chooses not to take that 10 per cent of the market place that is online sales.”

Many of those in the luxury sector believe the internet plays no role in their future. But onlookers claim they are misguided. Savigar says: “Anyone under 25 was born into an age of internet and mobiles. Any brand that thinks it isn’t relevant is wrong.”

It might be logical to assume that pure-play retailers’ position in the market will strengthen as web sales continue to increase, but Asos chief executive Nick Robertson believes things will only get tougher for many. “Those sites that dominate the top 50 web sites are just your big high street stores,” he points out. “We’ve built enough momentum to keep going, but if you’re a smaller player you’re going to get squeezed because people are going to the trusted online brands. There are a million online corner shops opening every single week, but for someone who’s going to compete in the top 10, 20, 30, it’s a different story.”

As Hicks points out: “If we could predict the future, we’d all be millionaires.” But retailers can be pretty certain that the growth in online shopping will not signify the death of the high street. Online shopping is undergoing a prolonged and massive boom and many businesses need to ramp up their online operations, but there is a fine balance to be struck. The demanding consumer of tomorrow will want more than just a transactional site. Thinking this is the be all and end all could spell disaster.

The shopping technology of tomorrow

By 2020, mobile web tools such as the Blackberry will be like pen and paper, says Oxford University’s Social Issues Research Centre, which published a study two weeks ago entitled Life online: the web in 2020.

It also forecasts that “v-commerce will replace e-commerce”. In other words, 3D virtual equivalents of high street stores, such as the online virtual reality platform Second Life, will become the norm.

New Look strategy director Sean Wills agrees. “People will want more social interaction, but for it to be seamless. People will want to use it to chat to friends as if they were walking down the street on a shopping trip,” he forecasts.

Other retailers speculate that a single checkout will be introduced, negating the need to fill in countless passwords and bank details on separate sites. Some believe that e-tail will even become voice activated.