Online shopping won't be a turkey

AGAINST a backdrop of another year of dotcom carnage, a new era of riches is hardly beckoning for surviving e-tailers, but they should at least get a break this Christmas.

Expectations for what is effectively the third mass market internet Christmas vary widely, but researchers do agree on the vital importance of seasonal spending to an industry even more heavily reliant on this time of year than the High Street - about a quarter of annual sales online are made in the festive season compared with a fifth of traditional store sales.

Retail analyst Verdict expects Britain's eight million virtual shoppers to propel total online retail spending to £815m in November and December, about two and a half times last year's tally.

Interactive Media in Retail Group reckons the nation's shoppers are ready to splash out £1.75bn in the three months to the end of January, up by a similar percentage, but fellow industry body Gartner expects Europeans to spend $8.5bn (£5.9bn) in the fourth quarter, up a more modest 40%.

Even if targets are hit, online sales will still represent only 2% of total expected consumer spending this Christmas. That is better than last year's 0.8% but still no more than a copper fraction of each pound spent by seasonal shoppers. Meanwhile, advertising income on popular sites remains a marginal contributor to revenue.

'We think this Christmas will be tough for retail in general, but online retailing is coming from a very low base. It's still new and, despite all the negative Press, it's still growing very fast,' said Verdict chairman Richard Hyman. 'Growth would be even stronger had it not been for the economy slowing down,' he added. 'Customer acquisition on the net is relatively easy. It's customer retention that really counts and, ultimately, we don't see internet retailing being very different from any other kind of retailing.'

Dr Simon Croom at Warwick Business School said: 'My evidence is that, as with last year, a third of sales will be in December and I'm seeing a significant increase in the number of people using the web, especially for groceries from companies such as Tesco and Sainsbury's. In fact, the big winners look likely to be the supermarkets.'

Turkey and trimmings may be the order of the day for Tesco's already profitable grocery side, but industry eyes are on whether the group can translate this success to its growing range of non-food items such as electrical goods and toys. If that happens, it raises the distinct possibility that a combined bricks and clicks strategy based around established brands is the immediate future of net retailing.

The expertise of mail order firms in dealing efficiently with remote sales and its inherent logistical problems is also expected to translate into a bumper Christmas for groups with catalogue arms, such as Next.

Meanwhile, expect anything Harry Potter-related to add a touch of magic to millions of online shopping baskets.

Managing the logistical nightmare that traditionally accompanies the Christmas surge in orders for e-tailers remains a headache. Dotcoms have made progress addressing the supply problems that bedevilled the industry over the past two years, but even well-known sites still have problems. Great Universal Stores-owned electrical retailer Jungle.com recently told 2500 shoppers it was unable to fulfil £250,000 of orders.

Delivery is just part of a wider confidence problem. According to the Department of Trade and Industry, 47% of net users are concerned about credit card fraud and 32% are wary of providing personal information - a significant drag on industry growth.

Ironically, customers' lack of confidence has been a key driver behind the rise of familiar High Street brands such as Tesco and Argos in cyberspace. Their arrival, and the collapse of so many pure-play e-commerce firms, has helped push internet prices up more than 5% this year.

'What we are finding is that one of people's main concerns is whether something will turn up in time, but that they are not particularly price sensitive unless it's a big-ticket item,' said Croom.