UK retailers lack the skills to entice Net users to shop online and are trailing their American competition in terms of service and value for money, according to a new report.

Window Shopping?, to be published by Fletcher Research on 11 January, says buying over the Net has barely begun in earnest in the UK. Users are overcoming worries about security but retailers are not yet offering them compelling reasons to shop online, it says.

UK market to grow to £3bn by 2003

The management report warns that British business could miss out on a local market expected to be worth more than £3bn by 2003.

Fletcher predicts that computer equipment and software sales will make up £1.3bn of this market and 16% of the UK market as a whole. Travel should be worth £490m, or 7 per cent of total industry sales and books and music £355m or 6 per cent.

The report says that online brands take time to become established and a major investment is needed to acquire new customers. The online stores that offer them the best service will be the ones driving Net shopping to become more than two per cent of total consumer shopping in the UK.

Report's key findings

The main points from the report include:

• Although only seven million adults are active Net users, they have an attractive demographic for retailers, 67% being male, 61% having gone on to higher education and the average age being 34.
• PCs, travel, shares, insurance policies and books have the greatest potential for online sales.
• Only 12% of users are active online consumers and sales only amounted to around £230mn in 1998, less than 0.2 per cent of the total market in the sectors analysed.
• Key measures of profitability on the Internet are the number of customers and "average customer lifetime profitability". Key drivers are marketing costs and customer retention.
• A third of the 49 UK retail sites reviewed were owned by specialist/start-up retailers competing with established firms. Companies such as Amazon and Charles Schwab could bring their experience of the more advanced US market to the UK and compete for a fraction of the cost of establishing a chain of retail outlets.

"US retailers have already learnt these lessons and are using that expertise to expand into the UK, particularly in key sectors such as books and computing, where Britain's High Street retailers may already find it's too late."