Web cashes in on high-street hell

Crowds, parking problems and high prices in stores have pushed festive online sales up 60 per cent this year, writes Abigail Townsend

Online retailers are enjoying a bumper festive season as consumers turn their backs on overcrowded high streets.

Online retailers are enjoying a bumper festive season as consumers turn their backs on overcrowded high streets.

Figures from Retail Decisions, a retail services firm, reveal that credit card use online between 1 November and 7 December soared by 61.6 per cent compared to the previous year. In contrast, credit card use on the high street increased by just 2.8 per cent.

Carl Clump, Retail Decisions' chief executive, said it was shaping up to be a record year for online retailers. "There are an increasing group of people who find [the high street] inconvenient, find car parking and traffic terrible and hate the crowds."

The news will be yet another blow to a high street, which is enduring a rough festive season - the most important time of the year for nearly all retailers. Many, including Marks & Spencer and Allders, have been forced into one-day sale spectaculars and heavy discounting to try to lure customers, despite the potential damage to margins.

Others, like HMV and Waterstones, are running promotions as they battle online rivals and, in particular, the books and music giant Amazon.

Overall, online shopping accounts for 2.5 per cent of total spend. Services such as holidays and flights remain the most popular items.

However, as broadband access increases and internet use grows, the sector is making itself felt on the high street. Figures from market research firm TNS predict online Christmas gift purchases will exceed the £1bn mark this year.

Nick Gladding, senior analyst at retail consultancy Verdict, said: "It is having a huge influence on pricing. People are looking on websites and then expecting the same sort of price when they visit the shops, and that's very difficult for high street retailers. Costs are rising and it's very hard for them to compete. Pressure will only get worse too as the successful online retailers get bigger."

Mr Gladding said that despite the wave of discounting across the high street, the only way bricks and mortar retailers would be able to compete long term was by "improving the quality of shopping in store. They just can't compete on price," he added.

However, some traditional retailers are also benefiting from the popularity of online shopping. Alison Lancaster, head of marketing and catalogues at John Lewis Direct, said: "We're having a fantastic Christmas season - we're up 75 per cent on last year."

She added that the site was intended to complement, rather than compete with, the group's department stores. Therefore, it stocks only around 2.5 per cent of the full John Lewis range.

Despite this, John Lewis has produced weak sales figures this year, with takings down 4.2 per cent on last year's levels during the week to 4 December.

And the bad news for the high street is that the popularity of online shopping shows no signs of abating. Says Mr Clump: "This is just the start of it. We'll be seeing even bigger increases in the coming years, there's no doubt about it. The high street needs to get involved with online retailing, otherwise it is going to get left behind."

WAR OF THE NET

Winners

Amazon: US online giant goes from strength to strength and is now an established brand. Consumers feel it is a safe place to spend their money, and its books, CDs and DVDs are well suited to internet shopping.

Tesco: although "bricks and mortar", the chain is currently the UK's biggest online retailer. It is set for a bumper Christmas and its website will have a significant role in that.

Ocado: Verdict's Nick Gladding says Amazon and Tesco may be the two best-known brands, but Waitrose's partner is one to watch. "Everyone I know that has used Ocado has been impressed."

Losers

J Sainsbury: "It should be the kind of supermarket that does well online," says Mr Gladding. "It has an affluent customer base and is well positioned. But it has really missed the boat."

Electrical retailers: conditions are already harsh on the high street, with Dixons warning of a tough Christmas. The internet will make it even tougher, as surfers shop around for the best deals.

Music and book chains: No one is expecting poor Christmas sales from the robust HMV, but it and its high street rivals face a battle to ensure Amazon does not steal too much market share.