SHROUDED in autumnal mist, within earshot of the din of the M1 motorway in Bedfordshire, extends an enormous, grey windowless building that covers an area six times as large as St Paul’s cathedral, or seven times the size of the Royal Navy’s biggest aircraft carrier.
Amazon.co.uk’s “fulfilment centre” at Ridgmont, just south of Milton Keynes, is well into a pre-Christmas recruitment drive that will treble the size of its workforce in 12 weeks to deal with up to 450,000 parcels dispatched on each of the busiest days in the festive season.
The 1,000 students and temporary workers arriving at Ridgmont and its sister site at Gourock, west of Glasgow, are hard evidence of the explosive 25% to 30% annual growth in internet retailing.
Whether it is customers buying Humble Pie by celebrity chef Gordon Ramsay from Amazon, or one of the 42,000 cars for sale on Ebay’s UK website, or mince pies from Tesco, online retailing this year is expected to rack up sales of £10.3 billion, excluding services such as travel and finance.
“We are planning for very strong and sustainable expansion,” said Brian McBride, Amazon UK’s managing director.
However, fast growth produces growing pains — and online retailers are experiencing several, including concern about after-sales service, a high rate of product return, and pressure to make websites a more exciting experience for consumers.
These issues, unless resolved, could cap the market share of internet retailing at about 10%, according to analysts.
Nick Gladding at Verdict Research said: “By 2010, we might start to see online retailing growth slowing down. By that time, it should be up to about 7% of total retail sales, compared with just 3.1% this year.”
Nick Bubb, analyst at Evolution, thinks it is right to be a little sceptical: “Online is just another channel to market, albeit a pretty big one and one that is having a lot of impact in some product areas.”
For the moment, online retailing is in fine fettle. Matthew Hardcastle, director of new marketplaces at Ebay, said: “Online retailing is actually accelerating in terms of growth. The first reason is the penetration of broadband, which is now in a third of households. Then there is the fact that people are spending more time online rather than watching television. Third, there is growth in online advertising, and fourth, consumers are more confident about buying over the internet.
“The last point is making people comfortable about buying not just low-value items such as CDs and DVDs but also more substantial purchases such as clothes, consumer electronics and cars.” He said that Ebay sold a car in Britain every two minutes and had tens of thousands of vehicles for sale at any moment.
The latest phase of growth in online retailing has led to traditional shopping chains such as John Lewis, Tesco and Next enjoying particularly rapid expansion — benefiting from the ability of customers to view a product in-store and then order it over the internet.
Sales at John Lewis Direct, its online arm, are 78.5% up so far this year compared with 2005 — with chandeliers, black Christmas trees, Dr Who toys and Egyptian cotton towels among the hottest items.
Amy Bastow, its general manager, said: “We have seen that sort of growth every year since we launched in 2001.
“John Lewis is a well-known and trusted brand, and we have done a lot of work in expanding our product range and marketing. Last year we had 15,000 products online, now it is 17,000, and next year it will be considerably higher.”
The online operation now employs 150 people, and is bigger in sales terms than any single John Lewis branch other than its flagship store on London’s Oxford Street.
Like John Lewis, DSG International, the renamed owner of Dixons, PC World and Currys, claims to be enjoying a synergy between online and bricks and mortar.
“About 50% of PC World’s sales online are now based on people collecting the product from a local store. By contrast, purely e-commerce companies may be at the mercy of their distribution systems,” it said.
Online has been more successful at penetrating some branches of retailing than others. The research firm Mintel estimates that about 30% of the books sold in Britain are sold over the internet, with music sales at about the same percentage, clothing and footwear at 20%, the same as computer hardware and software and entertainment tickets. Online’s share of travel bookings is about 35%, with groceries at 12%, it said.
Even so, the internet battalions are massing for further assaults.
Amazon has this month started to offer watches over the web in Britain. McBride said: “The watch and jewellery market is worth $50 billion (£26.5 billion) in America, twice the book market, so that shows its potential for us.”
Tesco, meanwhile, is muscling into a plethora of non-food areas online, from baby monitors to toasters and sofas, having notched up £1 billion of internet grocery sales in 2005 and a further 30% increase on that in the six months to June.
DVD rental looks like another area that is wide open.
Lovefilm is a website that hires 2m movie DVDs a month to 450,000 subscribers in Britain and Scandinavia. Customers receive the films by post and then return them to Lovefilm in the same envelope.
Simon Morris, marketing director, said: “Our range of 60,000 titles would be equivalent to a video store half the size of Oxford Street. People don’t have to ‘pop to the shop’ — in fact, renting a video from a shop is a chore, and you have limited choice.”
The two most common consumer problems with online retailing are not being in when the delivery arrives and ordering something that turns out not to be suitable: a blouse that is too tight to button up or — in my case recently — a family tent that arrived in two huge pieces, both of which were too heavy to carry on the train.
Online retailers are having to accept that the percentage of goods returned is much higher than in traditional retailing, where the customer sees and touches the product before buying, and that this high return rate carries a cost.
Bastow at John Lewis said: “Any online business will have this issue. We do a huge amount of work to find out why customers bring products back.
“There are three things we can do. The first is to make sure that customers have enough information about what they are buying. The second is understanding whether there is anything more we can do to make sure that customers get the right products at the right time. The third is to ensure that we have enough staff to respond to customer phone calls and deal with requests.”
Next month the Office of Fair Trading will publish the results of an investigation into internet retailing, and whether more needs to be done to protect consumers. In the meantime, it has been sending vendors a pamphlet on the law relating to “distance selling”.
Its key chapter rams home the principle that consumers should know when to expect the product to be delivered, when they have to pay for it, and what their rights are if things go wrong.
Citizens’ Advice is dealing with a steady stream of problems. Susan Marks, the organisation’s social-policy adviser, said: “Consumer concerns centre on trust — can you physically find the trader you are dealing with and resolve a problem?
“The internet retailer might be legitimate, but you could find it very difficult to find anyone via e-mail or phone to deal with your problems.”
Auction sites such as Ebay that provide the means for small sellers to find customers on the internet find themselves at the forefront of this battle.
Hardcastle said: “Every marketplace is prone to fraud. At Ebay we work hard to educate our buyers and sellers on the safest ways to trade, and invest a huge amount in technology and expertise to make sure customers receive the products as expected.
We are being very firm with sellers who do not conform to our standards.”
Concern about having adequate service resources to deal with demand has prompted the furniture company Ikea to be very cautious about launching an online arm.
“We will have a ‘soft’ launch, starting with one store in Nottingham next spring, and then roll it out elsewhere,” said a spokesman.
Until now, buying from online retailers has been a functional rather than an exciting experience. Many experts believe retailers will have to make the process more exciting if they want to protect market share and sales growth.
Lysander Meath Baker, director of Digivate, an agency that builds e-commerce websites, said: “When will sites make online retailing more interesting? I think pretty soon.
“I don’t think we’ll get virtual-reality software that makes you feel as if you are actually in a shop, but we will get a range of other techniques to give you ideas on what to buy, and to show off the attractiveness of products.”
As examples, Meath Baker points to the multi-angle clothes displays on the Net-a-porter site, the “paint a virtual room” option on Dulux’s site, and the video interviews about products featured on the American site Buy.com.
Other big names are also working hard to improve the customer experience.
McBride at Amazon said: “Up to now, a lot of online retailing has been little more than electronic For Sale signs.
“However, when people log on to the Amazon site now, they are greeted with a page showing things we think might be relevant.
“For instance, if you have already bought an iPod, we will display the latest headsets, or if you bought a Philips toothbrush a few months ago, we will show replacement heads for those.”
There is also a feature enabling buyers to read up to three pages of a book before deciding whether to buy it.
The technical advances may seem modest — for example, Next has a device that enables the buyer to zoom in on a photo of the latest pair of “five-pocket” jeans or “blue Superman” underpants, and B&Q’s site offers photos showing its solar panels from different angles. But retailers are only too aware that the net’s most famous failure, Boo.com, which went out of business in 2000, tried to make shopping interesting when neither customers nor their computers were ready.
Internet retailing is not a huge employer, except in one area — the cottage industry of online “shops” that feed on auction websites such as Ebay and sell everything from collectable items such as fossils or autographs, to car accessories and garden products.
With Ebay’s UK website expected to generate sales of £2.5 billion this year, a lot of people are clearly dependent on the site for a large part of their livelihood.
Independent analysts commissioned by Ebay this year estimated that 68,000 people in Britain use the auction site to generate anywhere between a quarter and all of their income — a higher number than the 65,000 employed by Marks & Spencer.
UK Sports Warehouse started six years ago selling MP3 music players, with Ebay as its only outlet, but has since turned into a wholesaler of sports equipment like Woodworm cricket bats and Adidas footballs, with its own warehouse in Banbury, Oxfordshire. Its listing says it has made 12,484 sales on Ebay, with a 99.9% positive customer feedback. Jim Turburfield, the firm’s owner, said: “We have used Ebay not just to sell to customers but also as a way of making contact with other firms that can sell our products.
“The only problems are that fees are high, at 4% to 5% of sales value, and there is a danger that if you use ordinary postage rather than recorded delivery, a few customers may claim they have not received a product when they have.”
The firm Nowthenourkid offers guitars and small fridges via Ebay, and its listing says it has made 6,496 sales through the site, with a 98.7% positive feedback. Its proprietor, Brian Swift, said he has a shop in north London, but “our sales on Ebay are just as important”.
