Crunch, what crunch? UK's shoppers are still spending but do it online

Research finds that consumers react to bad economic forecasts by seeking internet bargains

UK consumers defied the credit crunch to spend a record amount online with retailers last year, Verdict Research has revealed. Bricks-and-clicks retailers delivered soaring online sales up by 35 per cent to £14.7bn in 2007 – a rate of growth almost 10 times higher than that of the total retail market.

Verdict said the convenience of the internet continues to be the main driver of sales, but improved retail websites and increased broadband penetration also fuelled the boom.

Verdict's senior retail analyst Malcolm Pinkerton said the fact that consumers have less disposable income to spend was boosting retail online sales, as consumers seek out bargains and use price-comparison websites. "Disposable incomes are being squeezed and what is drawing people online is the perception that the internet is cheaper and that they can shop around to get bargains and lower prices. Broadband is also cheaper and it has broadened the spectrum of people who can shop online."

However, Mr Pinkerton said the credit crunch was driving them to cut back on purchases of big-ticket items – as is happening on the high street – and to buy smaller items, such as clothing, footwear and entertainment products, more frequently. "Consumers are spending slightly less per trip," Mr Pinkerton said. He added this was partly because of a decline in the sales growth of big-ticket electrical items compared to other categories. Electricals and grocery accounted for just under half of online retail spend last year, with electricals taking the lion's share at 25.1 per cent. Verdict forecasts that online grocery will take the top spot to account for 29 per cent of online sales in 2012, compared to 22 per cent for electricals.

Mr Pinkerton said that new entrants to online retailing last year, such as home improvement giant Ikea, contributed to a 24.7 per cent uplift in the number of online shoppers to 22.6 million. But he said that the "most significant factor" is that the majority of retailers are enhancing and expanding their online offers because they realise that demand is a long way from maturity.

Verdict forecasts that online retail sales will grow from 5.2 per cent of total retail sales in 2007 to 13.8 per cent by 2012. Mr Pinkerton said there was an element of online sales cannibalising store sales, but stressed that shopping trips to the high street are far from doomed. However, he stressed that retailers need to implement a multi-channel strategy that drives customers to stores, such as reserve and collect, and vice-versa. "The key is providing shoppers with the choice of shopping with them, such as researching online and shopping in store. It is about providing as many routes to market as possible."

David Smith, director of operations at IMRG, said: "The big thing is that retailers need to be online." He said that some retailers have struggled on the high street this year, but have been able to grow their online sales robustly. "Next and M&S have had a pretty tough time on the high street recently but their online sales have been much better."

According to Verdict Research, the two strongest performing categories over the past year have been clothing and grocery shopping. Jason Gissing, chief financial and marketing officer of the online grocer Ocado, said that its sales are growing at 25 per cent a year and that the average transaction value is £115.

Mr Gissing said: "The growth is coming from new customers. Interestingly, new customers spend less and as they become regular customers they spend more and more."

Asda's multi-channel director, Tony Prescott, said: "In the last two years, growth in grocery [online] has been massive and we expect to accelerate this over the next five years." He said that, in the past, online grocers have suffered a bad press with customers citing short dates on products, receiving substitute products and damaged products, but added: "This is certainly not the case now". Asda plans to provide national coverage for grocery shopping by the end of the year. The UK's second-biggest supermarket chain also intends to launch its George clothing brand online in September, along with Asda's full range of general merchandise products that are sold in its largest stores.