Return of the Cyber vend

It is likely, though, that there is another reason that the High Street may be looking quieter than usual in this traditionally busy time – namely the ongoing influence of the Internet.

A recent report by the industry body for e-retailing, IMRG, estimated that £80 billion of consumer spending is either on or influenced by the Internet, of which £30 billion of retail spending is online, £20 billion is “other” consumer spending (music, airline tickets) and a further £30 billion is “offline retail” spending, influenced by Internet research or information.

Furthermore, e-retail sales have risen 2000% in the last 6 years and 90% of consumers expected to increase their online shopping over the next year.

Have we been here before with the “dot.com” bubble or is it the trend we are seeing completely different?

By way of reminder – which will be painful for some - in the biggest ever shake-up in the FTSE 100 index, on 20 March 2000, 10 “new economy stocks” were admitted. These included the likes of Baltimore Technology, Celltech, Freeserve, Kingston Communications and Psion.

We know the next part. The “90% club” was formed as the dotcom bubble burst and many shares became worth a fraction of their previous prices as the market finally realised that valuations were unrealistic, unsustainable - if even achievable.

So much for the modern history reminder.

What lessons can we learn and what has changed in the intervening six years?

Of course, it is said that if anything seems too good to be true, then it is. When unknown stocks are racing to capitalisations of millions of pounds with no recognised trading patterns and no established income streams, the alarm bells should be ringing loudly. When “everyone” extols the virtues of new technology (and indeed it would have been difficult not to have made money during that boom) it is certain that a major correction is around the corner.

However, as the above research reports served to illustrate, this is a markedly different from the scenario at the turn of the century. Quite apart from the manner in which most companies have an Internet presence in one form or another, those which choose to “e-tail” have spent much time and capital on developing their sites to be interactive, simple to use and secure. Security was certainly a concern in the developing stages of using this technology, but of course technology evolves at breakneck speed and today is a completely different world to even a couple of years ago.

Interestingly, different markets evolve in different ways. In the US, the technology sector is a big part of the market and, as such, cannot be ignored. In the UK – where investors tend to chase more stable, high yielding stocks, and where there is no equivalent of a Google, Microsoft, E-bay or even Amazon – the internet is a by-product which existing businesses can use with increasing success, unlike the Stateside situation where there are some truly blue chip choices.

There is a difference today, however, with the way that the internet (specifically) is being used in the course of normal business. The market has ironed out the anomalies and it appears that we are largely back to traditional, “old economy” stocks who use, but do not rely on, technology to deliver their services. It is becoming increasingly clear that “bricks and mortar” and “clicks and mortar” can live together. The internet is being used as complimentary to, rather than instead of, existing established businesses, which in turn gives the consumer more choice, keener pricing and extra convenience.

As the tortoise passes the hare in 2006, and as only a handful of technology stocks prosper, we are served another reminder that history flattens fads when they are out of control.

Exposure to the net can now be derived from a more modest and measured form than via the dot.coms, namely via a mixture of the new and the traditional route.

Richard J Hunter

Head of UK Equities

Hargreaves Lansdown

www.hargreaveslansdown.co.uk