May 25, 2007 | posted by Michael Baxter in IABN |

According to data from Verdict Research, 2006 saw another dramatic increase in online sales. It says UK online retail spending throughout the year grew by 33.4 per cent, to a record £10.9 billion. That’s almost 13 times faster than the retail sector overall.

In fact, last year saw the fastest level of growth in the online sector since the bursting of the dotcom bubble in 2001. But unlike five years ago, Verdict Research sees no reason for an end to the boom, and the retail analysts expect online sales to almost triple over the next five years.
Why is it doing so well? Well it’s not rocket science. Verdict says more widespread use of low cost broadband services is a leading reason for the boom in online shopping. Of the 3,000 consumers surveyed for the report, two-thirds of the online shopper population (which now numbers 18 million) said they have broadband access and shop online more frequently because of it.
As for the future, Verdict says that by 2011 the typical spend of an online shopper will grow to £1,056 per year, up from £606 in 2006. Overall, it expects online sales in the UK to almost triple in value, with online spending reaching £28.1 billion - equivalent to 8.9 per cent of all retail spending.
But not all retailers have been convinced by the virtues of launching online; a significant number are still resisting the urge to jump on the online bandwagon. Verdict reckons the online revolution will largely miss food retailers, where the infrastructure cost associated with an online launch and the strength of competition act as deterrents, value retailers (such as Matalan, Primark and Peacocks), whose business model depends on driving high sales densities from their stores, and many smaller specialists, whose limited scale makes it challenging to finance major online infrastructure. For these retailers the case for major investment in transactional websites is far from proven says Nick Gladding, author of the report.

We have argued before, that the surging online retail market is changing the dynamics of advertising. Traditionally the key to success for a bricks and mortar retailer were the three Ps; that’s position, position and position. But for the virtual retailer, position on Google search engine results is more important.

The traditional retailer could enjoy greater sales by paying out more in rent, and securing the best possible position on the high street. For the online retailer, though, rent has been replaced by advertising and online marketing techniques. For these retailers it’s a new set of three Ps that count: promotion, promotion and promotion.