Internet Retailing in UK

Internet Retailing in the United Kingdom

Dissertation Writing Help in Internet Retailing in UK

Headlines

·         Internet retailing grows 21% in current value terms in 2008 to over £16 billion

·         Internet retail environment is maturing, becoming key part of a multi-channel strategy for most retailers

·         Mixed fortunes for Internet specialists

·         Food and drink most dynamic, driven by aggressive online expansion of key retailers

·         Tesco.com continues to lead Amazon.co.uk with value share of over 11% in 2008

·         Internet retailing predicted to see 14% constant value CAGR over forecast period to reach almost £32 billion in 2013

Trends

·         Internet retailing’s 21% growth in 2008 represented a slowdown compared with previous years, reflecting the channel’s larger size and increasing maturity.

·         Internet access continued to grow, rising 7% in 2007, reaching almost 15 million UK households (61%). 84% of these households now have a broadband rather than dial-up connection, making Internet retailing sites more accessible.

·         The economic slowdown in the UK is having an effect on Internet sales as consumers rein in their spending, although this is offset by more shoppers using the Internet to access lower prices or reduce the temptation to make additional, unplanned purchases. A survey by e-commerce consultancy Maginus released in August 2007 revealed that 76% of Internet retailers saw increased sales over the previous 12 months, with 46% experiencing growth of over 20%.

·         However, figures from the Office of National Statistics (ONS) show that the percentage of recent purchases in the highest price bracket – £500+ – declined slightly in 2007 compared with 2006, while the percentage of purchases in the lowest price bracket – £100 or less – had risen, implying that consumers are beginning to re-think high-cost purchases.

·         Segmentation is becoming a feature of established retailers’ online presence. Although Internet retailing requires investment in terms of website creation and developing suitable distribution networks, once these are in place the introduction of new online brands is relatively straightforward. This has led to a growing trend for segmentation within Internet retailing: for example, grocery retailers such as Tesco and Waitrose now have separate wine delivery sites, with homeshopping player N Brown launching a clutch of new banners targeted specifically at plus-size customers.

·         Food and drink Internet retailing is growing strongly, partly because the top retailers are rapidly developing their Internet offerings and the format is gaining increasing acceptance among consumers. However, an additional factor is that customers are using the channel to control their household spending in the light of the economic downturn and rising food prices, avoiding the temptation to make impulse purchases.

Competitive Landscape

·         Internet retailing is now seen as complimentary to, rather than in competition with, other forms of retailing. The number of retailers operating a single-channel model, whether store-based, homeshopping or Internet retailing itself, is falling year on year. Notable examples include Waitrose, which allowed Ocado to profit from its brand for several years rather than enter Internet retailing itself, but has now developed Waitrose Deliver, and is set to provide Ocado with direct competition. Meanwhile, in January 2008, Dell ended its non-store strategy, with its products becoming available in several different chains in the UK, including Currys, PC World and Tesco.

·         Tesco continues to lead thanks to a combination of online grocery sales and its Tesco Direct non-food online/catalogue operation, which is similar to the Argos model. However, it is increasingly a target for competitors: Asda is planning major expansion, not only extending the coverage of its grocery operation to reach 97% of UK homes greater than the current figure of 66%, but also massively expanding Asda Direct to offer over 750,000 non-food products, a 1,000-page catalogue, and in-store kiosks. Meanwhile Ocado, perhaps unwisely, has attempted to enter into a price war with Tesco in order to lose its ‘good but pricey’ image.

·         Despite the much-publicised growth in discounter grocery sales, no UK discounter offers online grocery shopping. Instead, their websites form a core part of their strategy by publicising weekly special offers in store, leading to Aldi and Lidl being ranked the fourth and fifth most visited grocery websites in the UK by research group ComScore Networks – higher than Waitrose, Morrisons and Ocado. A third discounter, Netto, which already offers online sales in Germany, has acknowledged that it is considering Internet retail in the UK, but is unlikely to launch until 2010 at the earliest.

·         Despite the growth of multi-channel retailers on the web, Amazon remains ranked a strong second, and increased its share further in 2008, benefiting from the depth of its product range and ability to negotiate advantageous prices with suppliers. The company is constantly looking to add new brands and products, and is currently rumoured to be considering a gourmet or packaged food offer on Amazon.co.uk. More likely is that Amazon will roll out its music download service, Amazon MP3, to the UK, having launched it in the US in September 2007. Amazon MP3 is currently cheaper than iTunes and the downloads are not copyright protected, so the move would pose a major threat to Apple’s UK sales.

·         Alongside new products, consumers are also offered the option to buy the products second-hand via Amazon Marketplace – a format used by small businesses to reach online customers, similar to eBay. Amazon Marketplace is set to receive an influx of these small retailers after a number of unpopular changes to the charging and feedback structure of eBay. eBay remains the cornerstone of consumer-to-consumer online sales, but appears to be losing impetus, registering declining global marketplace transactions in the first two quarters of 2008. The number of professional auctions on the site is diluting the attraction of finding a second-hand bargain, at the same time as changes to fees and feedback processes are causing eBay ‘Powersellers’ to defect to other sites. The company has also run into trouble over the sale of counterfeit or stolen goods on its site, ordered to pay damages of over £31 million to LVMH by a French court, although it won its battle in the US when it was ruled to not be responsible for the sale of fake Tiffany jewellery.

·         For most Internet specialist retailers the pressure of competing online with high-street retail brands (as opposed to Internet-only competitors) will intensify, particularly as the major store-based retailers are making the most of their financial resources to gain ‘second-mover advantage’ – taking whatever methods have been successfully pioneered by Internet retailers and adding them to their sites. The latest, and one of the most blatant, examples of this is HMV’s installation of Internet kiosks in its stores, where customers can order online directly from an HMV subsidiary based in the Channel Isles. This allows HMV to exploit an EU loophole waiving VAT on low-cost parcels sent between EU countries – the same loophole that has underpinned the success of Jersey-based Play.com.

Prospects

·         The value of UK Internet retailing is predicted to almost double over the forecast period, reaching almost £32 billion by 2013. The represents a slowdown in terms of growth compared with the review period, reflecting the market’s size and maturity. Despite the effect of the economic slowdown on consumer spending in the high street, online sales remain strong. Part of the channel’s strength is its reputation for offering the cheapest prices and the ease of price comparison, meaning that it is now the first port of call for cost-conscious consumers.

·         Demographically, there has traditionally been an AB bias to online shopping, but as penetration of broadband grows within the UK, the proportion of C2 and DE online consumers is rising. This has the potential to make the Internet attractive to new retailers, or affect the product mix of existing online stores. For example, value clothes retailer Peacocks launched its first online store at the beginning of 2008, following New Look’s online store debut in 2007, with George at Asda due to go online from September – moves that Matalan and Primark should be following.

·         Despite the fact that other retailing channels have lost sales to the Internet, it is now widely acknowledged that the two formats need to co-exist. Stores, catalogues and TV shopping channels provide Internet retailing with the shop window it otherwise lacks, so the increasing presence of multi-channel retailers should be seen as a very positive development.

·         For the same reason, a less likely development will be more manufacturers launching direct-to-consumer sites. As Dell discovered, faced with a mass of competition, a lack of store presence can run the risk of a drop in brand profile and falling sales as a consequence, which Dell suffered from.

·         Despite reports that it is also planning to launch a non-food catalogue, Sainsbury’s looks set to lose out in the online grocery retailer battle. The retailer is losing ground against its competitors on a daily basis, and TNS Worldpanel figures on online grocery sales in the three months to June 2008 indicated that the retailer was being overtaken for second place by Asda. Technical glitches also caused the website to shut down entirely on two occasions, which lost the company even more momentum.

·         Ocado could be the other major online grocery loser in the next year or two. Although built on the back of the Waitrose brand, there are clear signs that Waitrose is losing enthusiasm for Ocado. Not only has it refused to grant the company a 5-year supply contract, preferring a 1-year rolling contract instead, but it has also developed its own online grocery service, Waitrose Delivers, which competes directly with Ocado in some locations. Ocado is attempting to attract consumers by price matching with Tesco on a number of branded goods, but undercutting the Waitrose stores is likely to cause further conflict with owners John Lewis Plc. Ocado’s other strategy is to broaden its product mix to include more clothing and health and beauty products, but given the growing presence of other high street clothing and health and beauty brands on the web, this is a risky strategy. Ocado has long been planning to float on the stock exchange, potentially earning the money to invest in vital expansion, but if the partnership with Waitrose looks shaky, it may no longer be an attractive prospect to investors.

·         As online retailers become more powerful they, like their store-based counterparts, are beginning to demand more from their suppliers. Amazon has been ruthlessly using its negotiating muscle to demand attractive deals, and is currently in conflict with Hachette Group, publishers of authors including Stephen King and James Patterson, over wholesale terms and discounts. In retaliation for Hachette’s refusal to grant Amazon’s request for improved terms, Amazon has removed the ‘buy’ button for Hachette’s titles on its websites, only offering the option to buy second-hand copies. Amazon accounts for an estimated 16% of all book sales in the UK, meaning that the loss of sales to Hachette is likely to be substantial: Hachette claims that it has no choice but to make a stand. Recently, Asda also had to back down after sending a list of demands to magazine publishers which caused uproar: it seems that suppliers, pushed to the limit by rising cost and retailer demands, may be about to fight back, potentially weakening Amazon’s margins in future.

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