While overall consumer spending will drop by more than 5% by 2006, online sales will slide by less than 3% compared with Forrester’s earlier predictions, according to a new brief by Forrester Research B.V. (Nasdaq: FORR). Forrester now expects Europe’s retailers to drive €147.5 billion in sales in 2006 against the €151.9 billion forecast in June 2001. However, in 2002, we expect online retail to reach €32.8 billion, a marginal increase against our earlier projection of €32.5 billion.
“In April 2001, the European Commission predicted that private consumption would grow 2.7% in 2001 and 2.3% in 2002. But in November last year, the Commission downgraded its April prediction to 2.3% growth in 2001, and 1.7% growth this year. The OECD and the IMF have published similar, lower predictions for the European economy,” said Forrester Research Director Jaap Favier. “Since June last year, European consumers have changed, but it’s mass layoffs and not fear of terrorist attacks that have made their spending cautious.”
To understand what effect last autumn’s terrorist attacks on the US might have had on European Net shoppers, Forrester interviewed 45 online retailers across Europe about their experiences since September 11. The reality is that sales have hardly changed and terrorism has had little, if any, effect on online shopping. Indeed, Europe’s Net retailers expect visits and purchases to increase in 2002. Beyond last year’s pre-Christmas retail explosion, offline sales will suffer over the next 18 months as consumers tighten their belts. But, by contrast, the Net will become a welcome tool for these penny pinchers and will serve as the perfect tool for the purchase of cyclical goods like PC upgrades and consumer electronics. Additionally, it will drive offline sales of other more expensive cyclical goods like cars and white goods. Importantly, even when the economic climate eases in 2003, many of these Net buyers will remain loyal online shoppers.
“Bargain hunters will also flock to online travel agents but they won’t compensate for an overall decline in travel spending of 22% in 2002,” Favier added. “To have any hope of survival, travel players must lower their fares today — but none the less, many online-only travel agents will go under this year. The dust will only settle in Christmas 2002 as consumers regain both their confidence in flying and their budget to travel.
“Our model shows that consumers will purchase 57% more online in 2003 than they did in 2002. The bargain hunters of early 2002 will have become tenured Net buyers and will extend their purchases to more retail categories and bigger-ticket items. By selling bigger baskets and across categories, surviving retailers will reap the fruits of their customer relationship investments and their successful adaptive response to dark economic times.”