Independent high street retailers were issued with a stark warning today, get online by 2020 or prepare to shut up shop.
According to eBay’s third Online Business Index, despite a tough 2009, the majority of internet retailers have experienced an increase in sales and profits while expanding their business. However, four fifths (79%) of those with bricks and mortar businesses claim they couldn’t have kept their high street presence alive without being online at the same time.
The pressure on bricks-and-mortar businesses is set to intensify as 2020 marks the tipping point after which online sales of categories such as electricals and books will exceed offline sales. Retail expenditure on electricals for instance will be split £10 billion online vs. £9.2 million offline.
While British shoppers currently spend just one in 13 pounds online, that will soar to one in five over the next decade. Sales of items that were historically bought on the high street so consumers could sample them will see enormous growth: clothes and footwear will rocket by 351%, followed by Health & Beauty which will increase by 330%.
eBay has also revealed that by 2020, online will account for over half of all new retail businesses, compared to a quarter at present, with over 280,000 internet start-ups being established. Online retail expenditure will also increase by £46 billion (up 223%) by 2020, while offline spending will drop by £18 billion (down 7%) in the same period.
Mark Lewis, Managing Director for eBay in the UK, said: “To ensure businesses continue to thrive on the high street, they must raise their game and exploit new sales channels. The internet can provide a lifeline to all businesses, connecting them to customers across the globe. With a tipping point in sight, this needs to be sooner rather than later.”
Lewis added: “While internet businesses provide a significant boost to the high street, the latest Online Business Index shows that online retailers clearly demand the same support from the Government that bricks and mortar businesses receive.”
Online businesses call for improvements to the same infrastructure as bricks and mortar businesses including: enhanced postal and delivery services (42%), simplified rules on consumer protection (36%) and lower taxes for all businesses (53%). Investment in faster broadband (18%) or universal broadband access (13%) is considered much less of a priority, despite the considerable amount of attention given to them in the Government’s Digital Britain report.
Neil Saunders of retail research agency, Verdict, said “Traditional bricks and mortar shops simply cannot afford to ignore the potential growth opportunities available online. We are increasingly seeing consumers demanding a wider choice of products at competitive prices alongside improved customer service levels. With the 2020 tipping point fast approaching, businesses need to be looking to the internet to meet their customers’ needs.”
Shaun Redhead manages a family-run shop selling musical instruments. The shop was founded in 1998 and he began selling online in 2007. Since then, Redhead has never looked back: “We began selling online because we wanted to sell our products to a wider market. In the short time we have been trading online, income has doubled. As a result, we’ve been able to invest more into our business and grow at a rapid pace. Most importantly, it has allowed us to expand our bricks and mortar shop; in fact we have now bought the store next door and doubled the shop in size.”
Businessman Andrew Rowson took over his high street family business selling tow-bars, cycle carriers and roof bars in 2003. After a year of struggling to grow his business, he decided to open an online shop in addition to his bricks and mortar presence. He now has a turnover online of £1.2 million per year.
Rowson said: “We can have the best of both worlds – in fact, it’s very important that we do. Our business has been in the family for decades but was struggling to remain competitive. By introducing an online presence, we not only bolstered business but brought our offering to a global audience. Plus, it meant that we could retain the physical shop that is so essential to who we are.”
Methodology for Online Business Index · The Online Business Index is eBay’s quarterly survey of companies trading on the internet. The index focuses on the attitudes and business performance of hundreds of online businesses operating on eBay. · It is based on a major survey of 508 online retailers. · The survey was conducted by independent research consultancy FreshMinds, using seller information provided by eBay. Survey fieldwork was carried out online between Friday 28 August 2009 and Tuesday 15 September 2009. · On average, the businesses covered obtained 42% of their income from eBay, and 26% from other websites, including 10% from Amazon. 21% of their income came from their bricks and mortar businesses. · All survey respondents are registered as businesses on the eBay site and have an annual turnover of at least £68,000 on eBay alone, excluding other sources of income. The largest group of respondents (44%) were small businesses with a turnover between £100,000 and £199,000. · All figures in this report have been rounded to the nearest percentage point. As a result, figures may not always add up to 100%. About additional research The report was completed by Verdict Research. Verdict's expenditure figures and forecasts of future spend are modelled using several sources. Current spend calculations are based on a comprehensive assessment of retailer results from financial and trading statements together with an appraisal of official statistics from the BRC, ONS and other sources. This is overlaid by Verdict's own annual consumer survey which assesses what people shop for; in addition, input comes from Verdict's extensive auditing programme to monitor prices across the retail sector. Future spend is calculated using Verdict's own forecast model which uses, among other sources, the ITEM Club's (of which Verdict is a member) economic forecast and Verdict's own future assessment of the dynamics of the retail sector.