While normally you would expect any business market to show some signs of shrinkage during a recession, there is a theory that this may not be the case with the online business market. If you take a step back and think how you might shop if you are looking to save money, or you can’t afford the fuel for a long distance shopping trip, that theory may have some credibility. So how would it work?

The idea is that as money becomes tighter and people struggle to buy their everyday goods, more and more people will look to buy whatever they can online. As we have covered in earlier articles, the internet has cut out a number of cost layers for many online businesses which allows them to be so competitive on price. While this does not work for every site and every business sector, there are many more online sites undercutting traditional stores than the other way around.

However, there is a potential flaw to this argument with the fact that while savings can be made online, the chances are that the fall in disposable incomes will be more than the potential online savings. So we could actually end up with a scenario whereby both online and offline markets reduce in size, BUT the overall percentage of online transactions increases at the expense of the offline markets.

So the chances are that by the time we leave the current period of economic uncertainty behind, the share of online transactions, compared to offline transactions, will have increased markedly – albeit as a percentage of a smaller retail market. While there is a chance that some consumers may return to some of their offline shopping habits when money is a little more available, the probability is that once they realise the potential savings of shopping online they could be converted forever.

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This entry was posted on Friday, June 13th, 2008 at 8:39 pm and is filed under Finance. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.