Online vs. bricks and mortar

December 16, 2011
For an informed view on connected entertainment in the UK & Ireland, visit Cue Entertainment 

The UK takes the lead when it comes to online shopping, according to Ofcom, but the big question is if this love of the worldwide web can be reconciled with a healthy high street.

Figures released by the Office for National Statistics (ONS) on Dec. 15 reveal that the value of all retail sales in November was up by 4.6% on 2010, although volumes increased by just 0.7% year on year. The data also shows that online sales transactions for the month averaged £787.9 million a week, excluding fuel, an estimated 12.2% of total retail sales.

This internet bonanza is up from a weekly £546.4 million in October this year and is £194.5 million higher than in November 2010, when it represented 9.5% of the take.

Last year, on the day dubbed Cyber Monday at the start of the first full week in December, Amazon [pictured] clocked up 2.3 million transactions. On Dec.5 2011, the online retailer enjoyed its busiest day ever, and took orders for more than 3 million items. Amazon.co.uk Managing Director Christopher North said in a buoyant press release: “This is as a result of greater access to the internet via home broadband and mobile devices, meaning that people can shop whenever and wherever they want.”

As Mary Portas points out in her independent review on the future of the high street, “In 2015 we’ll be spending more than £40 billion a year over the internet and through mobile devices.” She quotes from the book by De Kare Silver, “e-shock 2020: How the Digital Technology Revolution is Changing Business and All Our Lives”, in which he claims that it will cease to be a bricks and mortar world.

“He argues that a 15% drop in store sales of most high street retailers pushes them below break-even and into loss. It’s not just the small retailers; many businesses on the high street are feeling the pinch,” says Portas.

The ONS figures appear to show that things are not quite that bad just yet but clearly, retailers will need to take a close look at her ideas for a “virtual high street” that would exploit the apparent British fascination with all things online.

This week, the regulator Ofcom published its “International Communications Market Report 2011”, a 365-page research document that details the year in telecommunications. The aim, according to the watchdog, is “To benchmark the UK communications sector against a range of comparator countries, in order to assess how the UK is performing in an international context.”

It is a laudable collation of data from reliable sources around the world although there is an unfortunate anomaly when it raises “the global online universe,” as Ofcom refers to the internet: “Year-on-year comparisons for France are not applicable because of an anonymous high-data point,” it says. It’s a pity that anonymity could not be waived on this occasion.

The lofty aim of the authors comes with the disclaimer “The information set out in this report does not represent any proposal or conclusion by Ofcom in respect of the current or future definition of markets…” So we learn little about what the future might have in store for UK residents. It does, however, provide a unique insight into Britain’s current place in that “global online universe.”

From data supplied to Ofcom by the Interactive Media in Retail Group (IMRG), it transpires that business-to-consumer (B2C) e-commerce transactions in the UK reached £939 per annum in 2010, up 21% from £773 p.a. in 2009. This figure is greater than any other country in the report, which places Australia second at £792 p.a. and the US some way behind in third place at £559 p.a. In the UK, we spend more than twice as much online as France or Japan does and almost three times as much as Germany, the report said.

Ofcom quotes ComScore data to show that users in the UK spend more time shopping online than in any other country in Europe. In January 2011, 89% of the UK internet users questioned said they visit retail websites and spent an average of 84 minutes a month in the process. In 2010, 79% of internet users in the UK ordered goods or services online, more than any other country in the EU, with Denmark in second place at 76% and the Netherlands third at 74%.

The story is somewhat different when it comes to the purchase of content online. Only a minority of internet users in the six “comparator countries” – France, Germany, Italy, Australia, the US and the UK – said they had ever bought content online. Consumers in Italy were the most likely to pay for online content on a regular basis (14%) but fewer than 8% of UK, US and Australian users claimed to be more than occasional buyers and the numbers were lower still in France and Germany.

In the UK, 54% responded that they “never pay for any content online,” and a further 20% said that they do so rarely. These statistics are inevitably out of date but they must raise a few questions for the proponents of connected content delivery.

Ofcom looked into the influence of social networking sites when making an online purchase and the results were not as positive as might be expected. Almost one quarter of Italians with a social networking profile said “yes” to the question, “Have you ever made a purchase following a recommendation from a friend or connection on a social networking site?”

UK networkers were in fifth place as 17% agreed that the recommendations of others influenced their buying habits, just ahead of Germany (14%). Ofcom predicts that recent changes at Facebook will make it easier for users to share their experience of online shopping and enable retailers to find new ways to market products and services to online communities.

The UK leads on mobile online shopping although it remains a minority activity. The number of shoppers in the UK and Germany who will use their smartphone to buy online is above the European average, which is around 6% of mobile owners elsewhere. “Mobile subscribers in the UK have been much more receptive to this way of shopping with 10.5% having visited an auction site and 9.2% an online retail site,” according to Ofcom.

The fact that consumers in some countries are more likely to buy goods and services online presents e-tailers with a conundrum since an analysis of the leading web brands finds that the same internet giants are present in almost every country, as Ofcom points out. In a chart of the Top 10 website brands, Google is in first place in six of the seven countries surveyed by Nielsen with Facebook in second place in five countries. Despite this apparent homogeneity, the shopping habits of different nationalities vary significantly.

Consumers in the UK are more likely to make online purchases than those in other countries. This is the result of a history of catalogue shopping, high credit card use and high levels of trust in online payments,” the report says, “Hand-in-hand with this, online advertising spend is proportionately higher in the UK than in other countries. It is instructive to explore how the take-up of different services varies between countries as internet connectivity, technologies and content interact with existing communications infrastructures, content ecosystems and cultural habits.”

Almost 30% of advertising spend in the UK is on internet advertising and Ofcom quotes the PricewaterhouseCoopers Global Entertainment and Media Outlook, 2011-2015 to show the correlation between internet and mobile advertising. In the UK, the spend per head on internet advertising is £65.53 while mobile spend is a meagre £1.33. In Japan, where most mobile subscribers have a 3G connection, the per-capita spend is £6.52 for mobiles, £35.52 for the internet. It is a sign of things to come.

This year’s Ofcom market report is the best yet. The UK media landscape comes out of this close examination rather well although some of the data already is out of date as technology continues to advance. There is no mention of near-field communication (NFC) technology and its place in mobile commerce, for example. While it might not be in Ofcom’s regulatory remit, NFC can hardly be neglected in any review of the smartphone ecosystem.

It is hard not to wish for an equally comprehensive annual assessment of the present and future of the high street. Portas is an excellent starting point and her “virtual high streets” concept is worthy of development, as is the idea of the “New Post Office”. Why ship product from a warehouse on the other side of the country when the item ordered online is sitting on the shelf in a bricks and mortar store near you?

The UK consumer clearly loves online shopping but hates waiting inside for the delivery. Perhaps now is the time for click and collect commerce to come to the rescue of the high street.