Clicks v bricks as internet retailers shape up for Yuletide shopping battle

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The Independent Online

Shoppers will be saying "Merry Clickmas" to their loved ones next month if figures out from the e-retailing industry body are to be believed. IMRG, the voice for online retailers from Asos.com to John Lewis, estimates that £7bn will be spent in cyberspace in the run-up to Christmas, a 40 per cent increase on last year's figures.

That massive jump is being fuelled by a concerted campaign from the biggest names on the high street to muscle into the magic world of online retailing, where there are no shop walls and no planning rules to hamper expansion goals. Marks & Spencer joined the throng of retailers this week unveiling ambitious plans: it wants to more than double its £100m of online sales in the next two years and has tasked John Dixon, the right-hand man to the chief executive, Stuart Rose, to make sure it gets there.

M&S is only joining a party long under way. Argos, Woolworths, Tesco, Next, Debenhams, John Lewis, WH Smith, Asda and most of Sir Philip Green's Arcadia brands are piling millions of pounds into their internet strategies in an attempt to create new cyber flagships - ones that come without a rent bill and need minimal staffing.

The buzzword of 2006 is "multi-channel": shopkeeper speak for finding as many outlets as possible from which to flog their goods. Retailers are playing mix and match with their shops, their websites and even catalogues to bombard shoppers on all fronts. The endgame is being able to link all these together. Mr Dixon wants M&S shoppers to be able to order goods on its website and collect them from any one of its 300-plus stores, following in the footsteps of Argos and Woolworths. Even Tesco, which launched its non-food offer online two months ago, is trialling a system that lets shoppers return unwanted goods ordered on its website to its biggest Extra stores.

As if that wasn't enough of an assault on our wallets, many of those companies are also pursuing aggressive high street expansion plans. M&S wants to increase its footprint by 20 per cent over the next five years, while Next added 30 per cent to the size of its estate last year alone. Primark, Debenhams and even John Lewis are also hungry for growth. And Tesco's legendary expansion plans are the pretext for an entire probe into the UK's grocery sector.

But with consumer spending under more pressure than ever - financial markets are already betting on another interest rate rise to add to yesterday's quarter-point - just where will the shoppers come from to ring all those new tills?

James Roper, the IMRG's chief executive, believes "something has got to give". He adds: "Plans to build all that high street space just seem mad." Richard Perks, retail research director at Mintel, thinks there will "definitely be casualties" on the high street. He points to sectors such as music retailing, where chains such as HMV are under intense pressure from the exponential growth in music downloads.

And in the electricals sector, that magnet for early internet adopters, the guillotine has already fallen on Dixons. Its once vast store estate now exists only on the internet because John Clare, DSG's chief executive, could not make the economics of running small high street stores work.

Nick Robertson, the chief executive of Asos.com, a web-based fashion retailer, is a "fundamental believer that there is a major cultural shopping shift" under way that is seeing shoppers migrate online. "That has to put pressure on stores. It's a given," he adds. Already competition from internet only retailers in the book, music and electrical worlds has driven down prices on the high street; Mr Robertson believes it is inevitable that fashion will be the next sector to suffer.

Clothing sales are growing faster online than all other products - albeit from a low base. Littlewoods, which lives on in the vortex of cyberspace despite selling off all of its high street space, wants to double its online sales to £750m over the next five years. And Tesco is testing ways to put its fashion lines, which include the feted £35 cashmere jumper from its F+F label, on the net. Even the designer boys, such as Burberry and Mulberry, are swallowing their pride and getting in on the act.

Paul Clarke, a retail and wholesale director at Barclays, believes the impact of all this will be to wipe out many of Britain's third-tier shopping centres. "The poorest space will be squeezed out. The marginal parts of the high streets and shopping centres will be used for other purposes as new space comes on stream." This will force property developers to pull the plug on many of their embryonic plans, he adds.

But these scenarios pre-suppose that internet retailing really does fly as high as projected. A retail think tank set up by the accountancy firm KPMG and SPSL, which tracks in-store customer visits, warned this week that there is "an element of the Emperor's clothes about internet retailing". Its members, who include Richard Hyman, of Verdict Research, and Barclays' Mr Clarke, believe: "Internet retailing is not all that it's cracked up to be, mainly because it has been imbued with a scale and power above and beyond that which it truly deserves." They question the IMRG's maths, which would have 20 per cent of UK retail sales going through the internet by 2010, preferring a figure close to 7 per cent.

With predictions for consumer spending and growth in retail space so hugely out of kilter, many industry watchers believe something has to give. Mintel's Mr Perks, who believes we are headed for a consumer downturn, says the combination of more internet retailers and a retail slowdown "implies some contraction on the high street" but adds: "It's not that simple." Rather, he believes: "Over the next two or three years the distinction [between internet and bricks-and-mortar shops] will become irrelevant because the major players online will be high street retailers. It will be hugely wrong to see the two in isolation because ultimately they have to work together."

This bodes well for retailers such as Woolworths, which has set its stall on integrating its troubled high street estate, where sales are going backwards, with its online offer. It even has internet kiosks in its stores for those customers who are not connected to the web - or, just as crucially for the future of online shopping, who do not live in the 50 per cent of urban homes that have broadband.

The other myth Mr Perks seeks to dispel is that online retailing is cheap as chips. He believes heavy marketing bills to gain customers means the economics of being a pure play retailer are "not as strongly in their favour as people like to think". The phenomenon of social networking sites could eventually change all that, however, as customers rely increasingly on peer group reviews to dictate their shopping choices.

Heather Hopkins, vice president of research at Hitwise, which monitors internet usage, predicts that 3 per cent of all internet visits in the next two months will be driven from sites such as Myspace.com and Bebo.co.uk. This is up from 2.2 per cent in August and growing fast. Either way, online retailers are set to give their traditional high street rivals a run for their money this Christmas.

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