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Retail therapy

Written by Deborah Ritchie
November 2011

The UK retail sector has shown strong growth over the last five years, despite an overwhelmingly gloomy picture overall. The UK also remains a pioneer in ecommerce within Europe, a position it should seek to maintain in these days of dearth

Official figures released last month by the Office for National Statistics (ONS) paint a much rosier picture of the state of retail than the British Retail Consortium (BRC) is getting from its members. The BRC’s own statistics show total retail sales values up 1.5 per cent on a year ago, meaning customers are actually buying less when the impact of inflation is factored in.

BRC director-general Stephen Robertson, said: “Most retailers won’t recognise the overly positive picture being painted by these ONS results. The reality is disposable incomes are down on a year ago and customers are cutting back.”

But while the past few years have been tough on retailers, eCommerce has bucked the trend and proved to be a profitable revenue stream for retailers. Forrester believes the UK’s online retail market will be £28.6bn in 2011 (nine per cent of the overall retail market) – almost double the online penetration of any other European country. In 2010, WorldPay estimated the UK eCommerce market to be nearly the same size as the rest of Europe at €124bn compared with €165bn.

But this success does not come with considerable risk. One of the primary challenges for merchants is the increasing competition as increasing numbers are looking to expand their online presence and tap into international markets. This presents additional considerations in terms of making sure their site and transactions are localised, as well as the associated fraud risks.

The Centre for Economic and Business Research (Cebr) says the impact of e-commerce fraud on the UK economy is likely to rise by 18 per cent, from £165.2m in 2011 to £195.3m in 2015.

“While fraud still needs to be thought of as a serious issue in eCommerce and cardholder-not-present (CNP) transactions, data from UK Payments actually points to a decline in the real levels of losses from 2007-2010, says Gabriel Hopkins, head of eCommerce products, at WorldPay. “Fraud losses reached their height in 2008 with £328.4m of fraud losses reported on UK-issued cards. In 2009, that number had decreased by 19% to £266.9m, and further decreased by 15% to £226.9m in 2010. This continued decrease reflects the efforts that retailers have made on their own to reduce fraud, in addition to industry initiatives such as 3DS.”

Where fraud in foreign markets is concerned, retailers need to think about using card scheme capabilities such as VerifiedByVisa in addition to risk management tools which can automate transaction screening and make identifying fraud easier.

There are also now a number of payments initiatives which merchants now have to comply with such as PCI-DSS and cardholder authentication, adding an extra layer of consideration for merchants, but at the same time an extra layer of security for customers.

The most successful merchants recognise that shoppers want simplicity and security when shopping online, and our own data has shown the benefit merchants gain when they add PayPal as a payment method in addition to Visa and MasterCard. The same principle applies to European transactions – merchants need to understand local transactions and consumer payment preferences, as it can make the difference to whether you’re successful overseas. For example, in the Netherlands, over 60 per cent of online transactions are conducted using the iDEAL payment method, whereas in Germany, Giropay, ELV and Sofort-eBanking are popular. This need for local understanding means that merchants are working with service providers who are able to offer payment capabilities like these, alongside other localisation services.

The smart option

Merchants are starting to see that consumers increasingly opting for mobile channels. The rise of smartphones has altered how consumers want to browse and interact with retailers. iPhone users especially are looking for merchants who can offer a quick and simple mCommerce process. Recent research conducted by WorldPay, with Consensus, found that 39 per cent of smartphone shoppers are frustrated with the length of the process when buying through their mobile, and 38 per cent were also irritated by the amount of information that needed to be entered for a transaction. The research shows that there is a consumer appetite for mobile shopping, but there is some way for merchants to go before consumers are completely happy with mobile as a channel.

In the future, consumers will be looking to merchants to provide a true cross-platform experience where their mobile device is at the heart of not only online payments, but also those made in store, through payment mechanisms such as NFC and mobile wallets.

Total retail search volumes grew at their fastest rate this year increasing by 35 per cent in the third quarter compared with the same quarter a year earlier. The increase was driven by a rise in mobile search volumes of 168 per cent year-on-year. The growth of retail search volumes for multi-channel retailers (usually those using stores and the internet) reached 26 per cent in the third quarter of 2011 compared with 71 per cent for pure online retailers.

The number of overseas consumers searching for UK retailers grew by over a third in the third quarter of 2011 compared with the same quarter a year earlier. The number of UK consumers searching for overseas retailers grew by three quarters in the second quarter of 2011 compared with the same period a year earlier. Mobile accounted for 10 per cent of retail searches.

“Mounting pressures on household budgets may be generating more online retail searches as people work harder to compare prices and track down value. While searches grew 35 per cent, their fastest this year, the BRC’s Retail Sales Monitor show growth in online spending has actually slowed to 10 per cent suggesting extra searches are a symptom of bargain hunting,” says Robertson.

“Even so, online retailing is still expanding quickly compared with selling through stores and searching from mobile devices is showing the most dramatic increase. Retailers are engaging with, and encouraging, this shift in shopping behaviour by providing more and easier ways to search and shop via smartphones and tablets.”

“Retail searches on desktop rose by 35 per cent year-on-year in quarter 3, with mobile growing by 168 per cent year-on-year. Home and Garden saw strong growth in July, while it was back-to-school searches which fuelled the August increase, with Consumer Electronics in particular seeing phenomenal growth in ‘tablet’ searches,” says Peter Fitzgerald, retail director, Google. “September also saw an uplift, as Christmas gift related searches began to appear. This is unsurprising given that many consumers are Christmas shopping earlier this year...International searches for UK retailers also saw a massive uplift last quarter, as countries already originating large volumes of searches such as Russia, Pakistan and Mexico saw increases of between 90 and 300 per cent year-on-year.”

Protecting against fraud

For those merchants who are taking their first steps to trading online, common sense can be one of the strongest tools in their arsenal to protect against an early fraud experience. It’s understandable that many of these ‘green’ online merchants can succumb to fraud, which can seem obvious in retrospect, but there are simple steps that can be taken.
The key for merchants is to strike the balance between making your website secure and ensuring a good customer shopping experience. Merchants shouldn’t focus on eliminating fraud entirely, as it can result in a bad experience for a lot of consumers with many safety steps to go through, and lots of declined orders. Striking the balance can be difficult, but industry tools such as cardholder authentication are invaluable, as are proprietary risk management systems which can take the hard work out of screening transactions against a vast set of transaction criteria.

There are risks for here for companies, too. With UK consumers say they’ll spend more time shopping online than in 2010, information security association, ISACA warns two-thirds of this time will be on devices also used for work, posing significant personnel risks for some enterprises.

“Retailers are the lifeblood of the British economy,” MP Eric Pickles, secretary of state for community and local government was recently quoted as saying. And no doubt it will take work to maintain that position. While much of the high street is seeing stagnant growth, eCommerce may represent a panacea for the UK in these stressful times, and a knowledge of the risks is, as ever, at the very heart of the matter.

IN FIGURES

(source: British Retail Consortium)


-In 2010 UK retail sales were over £293 billion.

-The retail industry employed over 2.9 million people as at the end of December 2009. This equates to 11% of the total UK workforce.

-The BRC-Bond Pearce Retail Employment Monitor showed that in quarter two of 2011 retail employment was 0.4% lower than in the same quarter a year earlier, equivalent to 3,100 fewer jobs.

-9% of all VAT-registered businesses in the UK are retailers, with the total number currently at 188,320.

-In 2010 there were 286,680 retail outlets in the UK

-More than a third of consumer spending goes through shops.

-Sales over the internet account for around 8% of total retail sales, despite strong growth in recent years.


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