The business-to-consumer sector in the US is gripped by a nuclear winter as online shop-fronts go under and capital for new ventures has virtually dried up. Statistics flowing out of the US are not encouraging for online retailers.
Recent figures show that online businesses are missing out on $3.8 billion of sales because consumers abort four out of five purchase attempts. A global survey by management consultants AT Kearney blamed the abandoned shopping trolleys on invasive information requests, reluctance to enter credit card details, malfunctioning web-sites and failure to find a product.
Some online banks are now opening up high street branches to have a real point of contact with the consumer, and Internet retailers may soon have to follow. Managing director of Irish shopping portal, www.Buy4now.ie, Ali Murdoch, says he believes 10 per cent of shoppers in Ireland can be brought online.
In the first month of its operation, the site won more than 10,000 registered users and completed 1,000 orders. When asked about the reluctance of people to buy perishable goods on the Net, Murdoch said that it was a case of building up trust with the customers. Consumers often initially just buy the basics - non-perishable goods such as sugar, flour and so on - but after a period of time try out one or two fresh food items.
If the products are up to standard, he said, then people become more trusting of the system. At the moment, however, Murdoch does not believe that any company in this sector can make enough money out of transactions alone to survive because the market is in its infancy. He also admits that the "abandon" rate before checkout is substantial among Irish Internet shoppers, and companies will have to work on reducing this. Changes in lifestyle are converting people to shopping online. The number of families where both partners are working is increasing, and Murdoch says "we're selling convenience".
Given the loathing many people have for shopping in supermarkets, though, shopping online is, in theory, an attractive prospect for many. In addition to people working longer hours and spending more time commuting to and from work, they have less time to shop.
However, retailers requesting information about everything from what you sprinkle on your breakfast cereal to your favourite cartoon character - before you can even make a purchase - is driving people away. A new European directive on distance selling came into force in May of this year with a view to giving consumers more protection when shopping online.
Under the directive, consumers are allowed a seven-day cooling-off period to revoke a contract without any penalty, and the weight of obligation for delivery is put on retailers. However, online retailers in Silicon Valley are going down the tubes so fast that sites have been specifically set up to monitor the fall of the dotcom sector.
The Register (www.theregister.co.uk) reported that those running conferences on the business-to-consumer sector were now checking these sites before announcing their line up of conference speakers. Organisers were finding up to 25 per cent of their speaker's companies no longer existed by the time it came around to the conference a few months later. Technology analyst with Goodbody Stockbrokers, Gerry Hennigan, says that content and service businesses are more suited to the Internet than companies that deal with tangible goods.
Whereas a bank can send a statement instantaneously, or an educational software company can transmit its products immediately via the Internet, retailers have to tackle transporting goods. He said he thought intangible products such as financial services would be more popular with customers than tangible products such as clothes and food. There will be no immediate change to commerce on the Internet, but as younger people used to technology grow up, the use and trust of e-tailers will increase, according to Hennigan.
Of course security is also a major issue. People are simply not convinced that when they enter their credit card details, they are safe from Internet fraudsters. When the ordinary consumer sees that an apparently impenetrable monolith like Microsoft has been infiltrated by hackers using a worm virus that was apparently already known to them, it does not exactly encourage confidence. Hennigan says that, although issues of fraud and a lack of security on the Internet are highlighted, fraud rates for non Internet use of credit and debit cards would make people's hair stand on end.
However, because credit cards are now an accepted and trusted form of payment, these rates do not come into the equation. In the US, Hennigan says, a lot of money was thrown at business-to-consumer sites that had no proper business model, but that this was not the case Ireland.
The frightening rate at which dotcoms have been burning up their cash reserves is a result of large investments in infrastructure and marketing, according to Hennigan. The fight for brand dominance is essential online, and while companies have been spending large amounts on marketing, they have not been producing sufficient revenues.
The director general of RG Data (which represents small Irish retailers), Ailish Forde, says that, while she sees a lot of potential for business to business transactions on the Internet, as well as consumers for repeat purchases, this cannot replace going to an actual store. Consumers like the social interaction involved in shopping and often want to see the product before they buy it. Forde says her members are adopting a wait-and-see approach, but that delivery of products ordered at a time convenient to the customer could present problems.
Both Superquinn and Tesco are piloting online shopping in Dublin at the moment. Internet content manager for Superquinn, Colin Marsh, says the service is targeting convenience shoppers such as households where both husband and wife are working or where parents are taking care of a large number of children at home.
But in many cases touch and smell are as important as sight when buying a product - and are frequently central to a purchase. A significant proportion of the population actually do enjoy shopping, enjoy the hustle and bustle of high street stores and do not want to do everything through their desktop computer.
