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Surviving the downturn
While the tightening of purse strings is hitting all industries, e-commerce and its lower price points is expected to fare best. But it's not just online shopping that looks likely to thrive, there's a whole world of business capitalising on a public staying at home in droves. Ed Waller reports.
A spectre is haunting retail - the spectre of recession, to paraphrase Karl Marx. The UK is already in one, according to the Bank of England; America is in sub-prime hell; and share prices the world over are in flux as uncertainty, even panic sweeps through markets.
Retailers aren't looking forward to a merry Christmas, you can be certain of that, as consumers slam the brakes on spending and put off upgrading their tellys or stereos until less troubled times. People aren't only cutting back on spending, they're not even going window-shopping, as half-empty high streets over the weekend testified. The retail chains are now holding their breath to see if the redundancies that have hit the banking and real estate sectors spread to other sectors - in which case all bets are off.
But how will all this affect the perpetually sunny corner of the global economy called digital retail? The high street might be losing out on revenue but consumers now have some very good reasons to go to price comparison websites to find the cheapest products or services available. Websites are often cheaper than what's in-store so that's another reason to shop online. The retail pie might be getting smaller, but e-commerce's slice of it could soon be getting bigger.
It's telling that a recent Forrester Research survey found that US consumers aged 25 to 34 would sooner give up pay-TV before economising on their monthly internet bill, such is the importance of web access to their lives. The internet is increasingly seen as not just a communications or shopping portal, but also a gateway to a broad range of entertainment, both free and paid-for.
This is another sector that could actually benefit from a recession, as instead of going out to the cinema or football match, or go on holiday, people nest at home in front of the TV. With the advent of Web 2.0, this now extends to watching video on the PC. Shows on the BBC iPlayer are free within seven days of broadcast and there are many other free video sites. Furthermore, subscriptions to pay-TV services like Sky and Virgin Media are expected to slow but vendors of Freeview or Freesat boxes can expect higher interest in their products from people jettisoning pay-TV and looking for cheaper options.
"One of the truisms about how consumers respond to a challenging economy is that they go out less and therefore by implication spend more time at home, watching TV," explains Tim Barber, associate director at Continental Research, which has published a study into consumer responses to the economic downturn. "What is interesting about this research is that it suggests many people are looking to save yet more money, by cutting back on their monthly subs for additional TV channels and services."
It's recessions that drove certain new entertainment products or formats in the past, such as the VHS rental business in the early 1980s and DVD uptake in 2001. Like some Californian forest fire, a recession might be just what's required to now allow the embryonic ad-supported web video sector to grow. In fact, watching video over the web is seen by some as a safer bet than hoping that consumers will cough up for new hardware such as Blue-ray DVD players - electronics retailers take note.
"These alternating economic currents will provide an enormous boost to free services like [US video websites] ABC.com and Hulu that leverage existing hardware and broadband access but will temporarily depress the newest nice-to-have gadgets on the market, like Blu-ray players, over-the-top set-top boxes and mobile TV," says Forrester Research's VP and principal analyst James McQuivey.
Ditto mobile phone service Blyk, which offers 16- to 24-year-olds free airtime and texts if they agree to accept targeted mobile advertising. Debuting a year ago, Blyk reached 100,000 subscribers in April and now plans to launch in Holland. "By targeting our messages to our members' profiles, we create a dialogue and engage consumers with what we know they're already interested in," says CEO Shaun Gregory.
Despite what everyone in the high street might be saying, e-commerce is actually quite well positioned to survive the economic downturn. It could even benefit the digital shopping and entertainment sector in the long run, as people stay at home and seek out the cheapest alternatives to going out.
