UK retailers lose out online

European retailers will be swept off the web by a US invasion, says investment bank Goldman Sachs.

'European retailers are in trouble', says a Goldman Sachs report covering Internet retailing.

The bank argues that European retailers either lack the merchandising skills to compete online, or are still bogged down by fears of cannibalising their existing revenues.

Goldman Sachs admits the conclusions are 'doomy', but is quick to point out that most UK retailers exploiting the Internet do so from developments outside their core business. Dixons and WH Smith, for example, offer free Internet access and portal sites respectively.

Goldman Sachs predicts that the Internet will capture more than five per cent of retail sales by 2010 - it currently accounts for 0.2% - compared to mail order's 3.8%. It also found that 43 of the top 100 European retailers have web sites but only 14% are transaction-enabled, compared to 43% of the top 100 US retailers' web sites.

US retailers are more likely to succeed because of their dominance of portal sites, and because they have no existing European store-based sales to cannibalise, the bank suggests.

The message is that any retailer planning to get onto the Net should hurry. Although the software to set up a site can cost less than £10,000, barriers to entry, such as the need to spend on advertising online, are multiplying as the market becomes more mature.

'We estimate that Books Online has just paid Freeserve between £6 and £8 million for a three-year advertising agreement,' the bank added.

David Birch, director of IT management consultancy Hyperion, said that UK companies risk being distracted by the Internet, and that European ecommerce will not necessarily develop in the same way as in the US.

Birch said that while the Internet might be the main delivery platform for US ecommerce in Europe, mobile phones and digital television will be more important this side of the Atlantic. 'If you compare the complexity of the Internet with putting a smartcard into your TV, you are on a hiding to nothing,' he said.