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Is e-tailing about to tail off?

Adam Caplan

Adam Caplan, Retail Analyst, explores the online retail market and its growth prospects.

At the annual BCSC retail conference this year, the first of a suite of panel sessions focused on most recent thinking regarding online retail. While everyone could agree that online retailing will not wipe out physical stores, there is no real consensus on how much growth still exists for the online sector.

Scenario 1: 25% of retail sales move online within 10 years

The first scenario, which is the most commonly accepted version of future events, suggests that online retail will grow to about 20-25% of all retail sales (i.e. FSP forecasts that this will occur by the early 2020s in the UK). For keen online shopping countries like the UK, the US and Germany, that would imply almost a doubling of the share of online retailing from today’s levels. For laggards such as France, Italy or Spain, the growth potential is even larger. This scenario points to a difficult future for Europe’s high streets.

e-tail vs retail
Source: TH Real Estate Research, FSP, 2014


Scenario 2: internet sales growth is levelling-off in pioneer markets

On the flip side, the research house Oxford Economics believes that internet shopping is close to the point of inflection and growth rates are on the brink of slowing significantly. Amazon, for example, reported lower (still impressive) Q2 growth rates in their most mature markets, Germany and the UK.

Source: TH Real Estate Research, Oxford Economics, 2013

To assess the impact on physical stores, headline retail sales can make all the difference. In the UK, Poland and Sweden, even with strong online sales growth, continuing physical stores still benefit from some positive growth. However, in countries like Germany, Italy and Spain, generally slower retail sales growth of 1-2% pa could mean that almost all future growth is absorbed by the online sector, leaving stores with stagnating sales growth. As some consumer goods, such as electronics, have a stronger tendency to move online, this certainly would lead to marked declines of total sales in physical stores for these categories.

Clearly, the future trajectory of online sales is uncertain. However, the impact on physical retailing will need to be managed by landlords intelligently. Realistically, the online market is at the mercy of a number of factors that are not yet determined: innovation, the economy, consumer habits and wage inflation, to name a few.


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