Online retail takes 20p of the shopper's pound

Online shopping is poised to take 20p out of every UK consumer pound by the end of the year, a landmark milestone that analysts believe will make the channel a critical business for many high-street retailers.

According to the IMRG Capgemini E-Retail Sales Index, UK shoppers spent more than £26.5bn online in the first six months of 2008, up 38 per cent from the same period last year.

Based on the current growth trends online-shopper spend will peak at up to 50 per cent of all consumer spending within five years.

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Although online shopping growth actually fell in June (the first time it has done so since 2005), the report predicts the economic downturn will encourage more consumer spend to go online, as shoppers hunt for bargains.

According to Capgemini UK head of consulting for retail Mike Petevinos, stores will be forced to change their business models as online shopping becomes more influential, integrating the two channels more fully.

Debenhams online campaign manager Joanna Stephenson agreed. "We expect shoppers to do more research online but still come into the stores on a Saturday. We will be looking to cut the clutter from stores, which may mean less products on show, but with staff on hand who are able to give better service. I think the differentiator will be product offerings exclusive to the store."

If the analysts predictions are right, and retailers that have traditionally ignored online shopping as a serious channel to market start investing in it, the pure-play online retailers - who have up to now taken advantage of an empty market - will also have to alter their business models to react to new market entrants from the beginning of next year.

One such pure-play is online lingerie retailer figleaves.com. The company's director of online merchandising said: "The advantage [we] have is our experience in fulfilment and providing the best customer experience online. We will have to differentiate ourselves but we already know how to make our customers brand loyal. I think we should be well placed to react if more traditional retailers come into our space."