0 Internet retailing to hit 15% of retail sales at year end

Author: Andy Walker
19th February, 2007

Internet retailing is predicted to make up 15% of all UK retail sales and be worth £40bn by the end of 2007, according to research by the Centre for Economics and Business Research (CEBR). The new research was conducted on behalf of price comparison and switching service uSwitch and predicts that online sales will make up 40% of retail sales by 2020 (equivalent to £162bn).

The main focus of the research, however, is how much consumers can save by looking around online compared to shopping on the high street and it does not take into account how much the internet influences offline spending - a figure in line with the amount spent online was quoted by IMRG in 2006.

According to the uSwitch research, 8 million UK households spend on average two hours a day shopping online, with the average household spending £980 a year on online goods and services. This represents 10% of their £9,630 total annual shopping bill. The most popular products bought online by over half of adult internet users are holidays, music and films.

Press release follows:

Online Shopping Set to Account for Nearly 40% of all UK Retail Sales by 2020

Online sales to reach £40bn this year and set to quadruple to £162bn by 2020 1

In 2002, online sales only accounted for 2% of total retail spend… uSwitch predicts this figure will reach 15% by the end of 2007 and 40% by 2020 2

UK consumers could save over £13 billion a year by shopping online

The internet could save each household £500 a year on everyday shopping and essential bills

Online shoppers save on average 13% on grocery items, 21% on services and 15% on travel and leisure activities

Internet savings can pay for average annual broadband subscription after only 4 months

It took a while coming, but Britain is at last riding high on the wave of the broadband revolution, with hundreds of consumers signing up to faster speeds and lower prices every day. Inspired by the new capabilities of the internet, broadband has become a way of life for over 13 million people and online sales reached £3.7bn 6 in the four weeks up to Christmas, a 50% increase on 2005. Based on these trends, a new report by independent price comparison and switching service uSwitch.com predicts that internet spend could rise to £40 billion by the end of this year and to a staggering £162bn in 13 year’s time – accounting for approximately 40% of the total UK retail spend.1

As online sales continue to grow, retailers are increasingly discovering the need to invest in their e-commerce infrastructure to drive growth. Results from this Christmas are the most telling with many retailers seeing their in-store profits fall while online sales soared. As a result, the number of online reported casualties is gaining momentum. A famous example being Alan Giles, ex-CEO of HMV and Waterstones, who recently resigned citing “increased online competition from Amazon and iTunes” as a major factor in the company’s poor performance.

According to new uSwitch research, 8 million UK households spend on average two hours a day 7 shopping online. The study also reveals that the average household currently spends £980 8 a year on online goods and services, representing 10% of their £9,630 total annual shopping bill 9. The most popular products bought online by over half of adult internet users are holidays, music and films.

While the benefits of shopping online are already clear in terms of time and convenience, uSwitch reveals that the 16million 10 adults who currently go online for goods and services will also reap the benefits financially. The report shows that each household in the UK can save a staggering £500 a year or £42 per month by purchasing goods and services online. 11 With the average broadband connection costing just £1512 a month – consumers still stand to save £27 a month. In fact, the annual broadband cost is paid off in just four months 4.

Shopping online for service goods, such as broadband, credit cards or energy proves the most fruitful, with prices on average 21% cheaper than through traditional retailers. Travel and leisure activities are also on average 15% cheaper if bought over the internet, while the smallest savings are made when buying grocery items online. On average savings of 13% can be made, but the survey revealed that, for commodities such as bread and milk, consumers are no better of buying online than on the high street.

Summary of savings for buying selected goods online versus high street

Sector, Spend, Annual saving per person, % saving buying online vs high st, Annual potential saving for all UK households
Retail & Grocery, £195, 13%, £5.1 billion
Services, £155, 21%, £4.1 billion
Other, £155, 15%, £4.1 billion
Total, £500, n/a, £13.3 billion

Steve Weller , Head of Communication Services at uSwitch.com says, “The dramatic surge in online shopping last Christmas shows that British consumers are already savvy to the benefits of buying goods and services over the internet. Over the last year broadband prices have fallen by up to 17% 14 while speeds have gone up, making it cheaper and simpler for consumers to log on instead of going out to the shops. Online security has greatly improved so our peace of mind is greater than ever before, and the internet makes it easy to shop around at maybe 40 or 50 different stores in one go to make sure that we are getting the best deals. The falling number of trips that people make to the shops each year, from 237 in 1994 to 206 in 2005 shows just how busy our lifestyles are getting.

“However, consumers may not be aware that as a nation we could save a massive £13 billion 2 a year by shopping online – or £500 for each household. This would pay for your annual broadband cost nearly three times over 4.”

What are consumers buying online?13

Over half of adult internet users buy holidays online

Around 1 in 5 users buy their groceries online

53% buy music and films

Around a third of internet users purchase books, clothes and sporting goods

35% buy tickets for events online

A fifth of people buy their insurance online

1 in 3 internet users buy computer software online.

Weller concludes, “After the New Year celebrations, many people are tightening their purse strings and making resolutions to save. One of the easiest things to do this is to get a broadband connection and shop online as a way to save BOTH money, and time.”

Notes:

1. uSwitch calculation based upon forecasted market growth as outlined in analysis carried out by the CEBR in 2006. Forecasted data on total online sales based upon predicted quadrupling of online percentage between 2005 and 2016. Exact online spend figures extrapolated from ONS retail spend data. Source: www.statistics.gov.uk

2. Percentages based upon forecasted total retail spend and forecasted total online spend, as outlined in CEBR analysis, 2006. Forecasted data on total retail sales based on average percentage increase over the years 1996-2005. Forecasted data on total online sales based upon expected quadrupling of online percentage between 2005 and 2016, as outlined in CEBR analysis, 2006.

3. Research by CEBR carried out in 2006 shows the annual saving a household can make is £500. This means if all UK households were to shop online they would collectively save £13 billion.

4. Research by CEBR based on a selection of high street prices and their online equivalents, carried out in 2006. Breakdown of costs outlined in ‘Summary of savings for buying selected goods online versus high street’ table.

5. uSwitch calculation based on average cost of broadband at £180 a year and annual saving of £500 a year shopping online. Shopping online will save £1.40 per day so annual broadband subs cription will be covered after 128 days or 4 months.

6. Source: IMRG Jan 2007

7. Research by YouGov for uSwitch of 15,323 broadband users in October 2006.

8. Research by CEBR for uSwitch in October 2006. Internet spend per household for online shopping, per annum is around £980.

9. Research by CEBR for uSwitch. Total spend on the high street according to the research is £8,650 per household per annum. Online spend is £980 therefore when combined the average yearly shopping bill per household is £9,630. £980 of online spend would equate to 10% of total shopping bill.

10. Research by CEBR based on adults who have accessed the internet by purpose of personal use from Office of National Statistics (latest official publicly available data is October 2005), 16million adults in the UK were going on-line to buy goods and services.

11. Research by CEBR. Survey of a selection of high street prices and their online equivalents showed an annual saving of £500 per household could be made if selected products were bought online. This equates to £41.66 a month.

12. OfCom Communications Market Report August 2006.

13. Based on research by CEBR conducted in October 2006.

14. Based on broadband prices in January 2006 and December 2006

from:InternetRetailing.net
February 19th 2007

Entry Filed under: E-commerce News