Despite the gloom in the wider market, online continues to grow impressively. Charlotte Hardie surveys the state of the e-tail sector as we enter recession, and how to keep ahead of the game.
Net-a-Porter, famed for its£1,000 Chlo頨handbags,£1,500 Pucci dresses and£300 Miu Miu shoes, is the website beloved by many a City banker’s wife. With the collapse of the global banking system and a reversal in countless bankers’ sizeable fortunes, one might assume that sales at the e-tailer would have taken at least a bit of a hit. Not so. Last week it emerged that Net-a-Porter’s sales had risen by more than 50 per cent to around£85m for the year to January.
While many of its high street luxury counterparts are struggling, Net-a-Porter’s performance reflects the fact that the world of online is significantly more recession-proof – and not just in luxury but across the board.
As Google retail industry leader Peter Fitzgerald says: “It’s nigh-on impossible to find a retailer that didn’t grow online over Christmas.” Look at DSGi, for instance. Its e-commerce sales were a bright spot in an otherwise disappointing set of results – online was up 6 per cent compared with a 10 per cent fall in like-for-likes in the 12 weeks to January 10. Meanwhile Argos’s internet sales over the festive period rose by a third to comprise 12 per cent of the total.
Ulric J鲯me, executive director of DSGi-owned e-tailer Pixmania, says: “We’re not seeing the crisis a lot of retailers are feeling on the high street. We’re growing well and we’re seeing an increase in orders in line with what we expect.”
Comet head of direct channels Ryan Thomas is similarly positive about online. “It’s not immune to the recession and growth has slowed, but sales are still on the up,” he says.
Of course, this is not to say that online retail is a wholly halcyon world in this tough economic climate. Figleaves chief executive Julia Reynolds says: “We’re far from resilient. All our customers are cautious; people are trading down and they’re looking for a bargain.” However, it is far more buoyant than the high street.
Online sales rise
Latest IMRG figures indicate that online sales increased 12 per cent year on year in February. January figures were up 19 per cent. The average growth over the past six months has been around 15 per cent year on year. IMRG chief executive James Roper says: “I think this growth will stay steady.”
Market research firm Forrester is more cautious. It believes the maturity of e-commerce will contribute to slower growth than in previous years, but that the recession will have less of an effect on internet sales.
There are several reasons why this medium is more resistant to economic pressures. One is retailers’ improved online propositions. “It’s far more sophisticated now,” says Roper. Fitzgerald agrees. “The general quality of websites is improving and many retail businesses are only just starting to have a credible online offer. Consumers are ready to embrace that,” he says.
Furthermore, people are staying in more and when they stay in, they spend more time whiling away the hours on their computers. As people increasingly look to save money, the internet tends to be one of the first bargain-hunting destinations. Mike Altendorf, chief executive at technology solutions provider Conchango, says: “People will still spend on consumer items; otherwise we’d all be as miserable as hell, but people are generally spending less money.”
J鲯me says shoppers are recognising that the internet is the ideal place to make savings. Although Pixmania’s orders are up, the average basket spend is down. “If people are choosing between two products, they’ll choose the cheaper one,” he says. But even if shoppers opt for the cheaper item, the retailer is still benefiting from the traffic generated and the sale made.
And there is more good news. A third of the population is still without access to the internet. The Government’s commitment to ensuring every UK home has access to broadband by 2012 should help increase the number of people adopting online shopping.
The growth of online fashion is particularly strong. Fashion players are finally catching up after having at last been convinced that shoppers don’t have to try clothes on before they buy. Brands that have gone online relatively recently such as New Look are filling a significant gap in demand.
But this is not to say that retailers can simply assume their online businesses will continue to grow. They need to keep improving the service they offer and the look and feel of their websites in order to keep attracting customers and encouraging them to increase their spend.
So while online sales are growing despite the recession, this does not mean the operational challenges are any less great than they are on the high street.
Thomas says it is essential that online retailers demonstrate expertise in their field. “Retailers have to add value. You can’t just slap products on the site and hope they will sell,” he says. Comet has introduced, for instance, online videos to help customers with purchasing decisions.
Also crucial to multichannel retailers’ future success is a solid cross-channel strategy. It is no longer enough to have a strong website and high street presence that run neatly alongside each other. They need to actively support each other. The most successful retailers already do this – services like reserve online and buy in-store, buy online and collect in store, and buy online and return to store are becoming increasingly important to online shoppers. At Christmas, sales through Argos’s Check & Reserve service increased nearly 50 per cent.
Debenhams head of direct David Worby says the retailer will this year launch a comprehensive cross-channel strategy. Customers will, for example, be able to collect online orders in stores, or access the internet in stores and arrange for goods to be delivered to a place of their choosing. “We’re working very hard to forge greater links between our online channel and our stores,” he says.
Fitzgerald stresses that a seamless multichannel strategy is crucial. “Cross-channel retail is absolutely key to future success. Multichannel customers transact twice as much as single-channel customers, spending 95 per cent more and generating 80 per cent more margin,” he says.
He says Best Buy is the epitome of a finely tuned cross-channel retailer. “They’ve recognised that consumers buy from more than one channel and they’ve been very smart in how to entice a single-channel shopper into becoming a cross-channel one.”
The lengths Best Buy goes to in order to achieve this are impressive. Its customers who shop online and collect in store even have designated parking spaces to make their trip as convenient as possible. They also use different checkouts in stores to speed up the process.
Change in dynamics
Cross-channel retailing also includes those shoppers who research online and then shop in store. Worby says Debenhams has noticed a marked increase in this kind of behaviour as the recession has deepened. Now that consumers are comparing prices more online, traffic to its website has increased. “Far more people are starting their visits by going online, then physically going into the store – many even with print-outs of what they want. We’re seeing a change in dynamics of how people are using the web.”
Findings from Forrester (see box on previous page) suggest that 51 per cent of consumers research online before visiting a store. Google says this applies to more than 70 per cent of store sales in the electricals market. And yet countless multichannel retailers do not put their full product range on their websites. If a shopper can’t find a product online, they will not assume they can buy it in a store.
The trouble is, many UK retailers are trailing behind with their cross-channel strategies. Across the pond, their US counterparts have cracked it. Forrester says that around 80 per cent of US businesses have a single customer view – in other words, a single database with records of each customer, regardless of whether they have shopped online or in a store. Such databases will lead to a better understanding of retailers’ shoppers, improve customer service and enable more targeted marketing campaigns.
Of course, all of this requires investment. But as Worby says, compared with a few years ago the cost of that investment has become more achievable, largely owing to the number of suppliers on the market. He adds: “If you don’t continue to invest in relatively modest numbers then it will come back to bite. You can very quickly become a laggard in this business unless you make the right investments.”
Multichannel retailers in need of a little cheering up can take solace in the continuing growth of e-tail. However they need to be mindful that the bar is continually being raised in terms of quality and service. Maintaining online growth will require ongoing cash injections. Simply assuming that cyberspace is safe territory will prove lethal.
Most online consumers in the UK – 51 per cent – are cross-channel shoppers
Broadband penetration is still growing
People are shopping online to find better prices and save on fuel
There is greater confidence in online security
Generational change alone will expand the market by several hundred thousand people a year, as young adults are much more likely to shop online than their grandparents.
The next six years
Despite the recession, e-tail sales in the UK are expected to continue to maintain strongly growth over the next six years as consumers continue to move their spend online. By 2014, 37 million UK consumers will spend£56bn online. However, this includes travel sales.
The credit crunch, the slowing down of the UK economy and the overall maturity of e-commerce will contribute to slower growth than in previous years. However, the recession will hit online sales less hard.
Source: UK Online Retail and Travel Forecast, 2008 to 2014, Forrester