How the credit crunch affects online spending

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Whilst The British Retail Consortium (BRC) this week warns that high street spending is down, it seems that there is no stopping the rise in online shopping. The BRC reports that March’s figures for high street spending were the worst since July 2005, when bad weather hit sales. The results have confounded expectations that this year’s early holiday period would boost the High Street.

With a wet Easter having a negative impact, clothing and footwear stores reported their worst takings for eight years. But whilst high street shoppers cut back on furniture and electronic goods, the retail giant Tesco reported an 11.8% rise in annual profits to £2.85bn, with UK like-for-like sales up 3.5%. Tesco additionally out-performs any other European rival when it comes to selling online.

Yet, off-line: “Customers are making serious economies and are concentrating on essentials,” states Stephen Robertson, director general of the BRC.

However, it seems as if high street consumers are still ready to spend on essentials and luxury goods: fashion house Burberry saw its shares rise by nearly 10% after it reported a 19% rise in revenue during the second half of its financial year, despite the toughening economic conditions.

Two-tier Consumerism?

So do these high street spending patterns demonstrate two-tier consumerism: those scraping by and those with disposable income to spend? Well with over 60 ecommerce websites managed by my company Chapter Eight , I believe that consumers are still buying, but that spending has switched base from the high street to the home pc.

Our client base is divided into two core client groups: those selling luxury goods and those selling non-luxury items such as printer cartridges, children’s furniture and socks. It’s not true to say that luxury goods are outperforming consumables in terms of online sales.

This week’s statement by the BRC is more likely to be an indicator that people are window shopping in the high street but buying online. Where consumer confidence is dented by falling house prices, higher food and energy bills, shoppers will research more vigorously before they buy. That’s where internet shopping beats trudging from store to store in town.

Price comparison sites quickly lead online shoppers to the cheapest deals, so if consumers can buy essentials more cheaply on line then they will. This leaves a bit more to spend on the non-essentials such as leisure wear, holidays and electronics.

The luxury goods market holds strong – fuelled by new demands from China and emerging east European markets. Chapter Eight hosts websites for many prestigious British fashion labels that number Kent & Curwen, Papworth Travel Goods, Swaine Adeney Brigg and Viyella – our clients are enjoying sales growth from the East and are even opening stores in China (Kent & Curwen have opened 50 in the last 12 months alone). We design our websites to be multi-lingual so that our clients can take advantage of shifting consumer demands across the globe.

Last week the Bank cut interest rates to 5% from 5.25% in an attempt to spur both consumer confidence and the wider economy. It was the Bank’s third cut in rates since early December. So surely online sales must be falling?

Not a bit of it, online sales are on the up. Take travel as an example: in 2007, European online travel sales increased by 24% to £37.2 billion, accounting for 19.4% of the market. The growth is set to continue. The Scandinavian Research Centre tips 2008’s total to come in at £44 billion, or 22.5% of the overall market. 2009 could see online travel sales take over a quarter of the market with sales of £52.7 billion.

PayPal urges business to get ready for online boom

It’s a view echoed by PayPal. By 2010, one in five purchases that would not have happened in a high street shop will take place on the internet, helping online spend to double by the end of the decade, according to PayPal.

In a study to coincide with the launch of its new guidance for e-businesses, the global payment system predicts that online consumer spend will reach £39bn by 2010.

The staggering increase, it says, will be driven by 24.9m new shoppers by the end of the decade, a 71% rise on last year’s total. These new shoppers will also account for 49% of the adult population.

PayPal estimates that this growth will add a further £3.2bn in spending, as 20% of non-purchases on the nation’s high streets will be made at internet businesses.

The company has warned businesses to start trading online now or risk missing out on potentially huge profits.

“Over the past few years we’ve seen the internet gradually eating away at the high street,” said Carl Olav Scheible, Head of Merchant Services at PayPal. “By 2010, we expect substantial sums previously spent on the high street to have moved online. We have worked closely with the market experts to produce a simple but effective guide which can provide small businesses with the essential tool kit that many of them are lacking.”