With many consumers shopping using their smartphones, retailers have to ensure that their websites and apps are relevant and quick
On August 11, 1994, a group of college graduates in the city of Nashua in New Hampshire claimed they had made history.
Like many historical events, rivals have challenged this view, but it is now widely accepted that Daniel Kohn and three friends conducted the first secure online shopping transaction 20 years ago this week.
The key word is secure. Before August 1994 it was already theoretically possible to buy and sell products using the internet but nobody trusted the safety of the technology.
However, Kohn and his start-up company, called Net Market Company of Nashua, worked night and day to develop a code that was so secure that “even if the NSA [National Security Agency] was listening in, they couldn’t get the credit card number”.
Kohn was studying at the local Swarthmore College but came up with the idea for Net Market during a year abroad at the London School of Economics. His story was documented by The New York Times on August 12, the day after the historic transaction.
Net Market’s first customer was a classmate of Kohn at Swarthmore. He used a computer in Philadelphia to pay $12.48 (£7.48) for the CD version of Sting’s latest album, Ten Summoner’s Tales. That album includes the single Fields of Gold but little did Kohn know at the time how lucrative his discovery was and that it would pave the way for other entrepreneurs to build companies worth billions of pounds.
It is somewhat ironic that the company that sparked the dramatic change in how we shop did not share in the glory. Kohn went on to become a venture capitalist and has described August 1994 as “our 15 minutes of fame”.
However, others haven’t missed out. Just 11 months later, in July 1995, Jeff Bezos started selling books from a two-bedroom rented property in Seattle. Today, his company, Amazon, is worth $152bn.
Fortunes have also been made in the UK. Online grocer Ocado and fashion retailer Asos, created in 2000, are both worth £2bn.
Today, 95pc of people shop online in the UK and the country spends more per capita through the internet than any other country, according to data from Shop Direct.
Online sales in the UK are expected to breach the £100bn mark for the first time this year and grow by 17pc compared to 2013.
Across all sectors, online spending accounts for roughly £1 in every £5 spent, although in areas such as entertainment it is far higher and in groceries it is lower.
The growth of online shopping has been based on the choice and convenience it offers. Once Kohn helped the world to believe that you could buy products securely over the world wide web, consumers discovered that with just a click of a mouse they could buy millions of different products.
Amazon has grown from selling books to offering more than 100m distinct products, while Ocado markets itself as the world’s biggest supermarket.
However, online retailing is still developing rapidly. It is starting to become clear that the future may not be determined by how much choice customers have but how little.
Although Amazon, Asos and Ocado have seen their sales and market value soar since they were created, the same can not be said about their profits. All three companies have been dogged by questions about their ability to make money and it is starting to weigh on their share prices. In 2014, Amazon shares are down 17pc, Ocado’s down 24pc and Asos 61pc.
While offering a wide range of choice is attractive to customers, it is not necessarily attractive to shareholders, who must bear the cost.
Other retailers and consumer goods makers believe that limiting the choice for shoppers is the right approach.
The German discounters Aldi and Lidl have built their businesses on having a narrower range than traditional supermarkets. By selling fewer products, the discounters can offer lower prices.
So while a discounter sells about 3,000 distinct products, a Tesco supermarket offers 25,000. As Ronny Gottschlich, the UK boss of Lidl, said: “If you [and another customer] don’t know each other, would you like to pay for his choice of a different type of water?”
One City analyst has already said that one of the first things Dave Lewis should do when he takes charge of Tesco on October 1 is reduce the struggling retailer’s range. Nicola Di Palma at Brewin Dolphin said it would help to boost availability of the products Tesco continues to sell and reduce waste.
This strategy has also been advocated by the boss of Procter & Gamble, the world’s largest consumer goods company, who wants to cut up to 100 brands.
“There is a lot of evidence in a number of our business categories that the shopper and the consumer really don’t want more assortment and more choice,” AG Lafley said. “Consumers want to keep their life simple and convenient.”
Andy Street, the boss of John Lewis, believes his key asset in the battle with Amazon and other online rivals is how the department store chain edits its range. Shoppers will go to John Lewis instead of Amazon, he believes, because they know it will only sell products of the highest quality.
Retailers such as Dixons, Game, Argos and HMV are also targeting Amazon by trying to sell exclusive and distinct products that it does not. Argos, for example, has just launched a new upmarket home brand called Heart of House.
Amazon is likely to remain an exception to this trend. Its business model is built on trying to sell customers everything and becoming a utility.
However, even Amazon is streamlining the choice for users by personalising its content. By tracking what users are looking at, it recommends products that might be of interest.
Personalisation is the new battle ground for online retailing. With many consumers shopping using their smartphones, retailers have to ensure that their websites and apps are relevant and quick. The success of retailers will increasingly be decided by how well they target their range, not by how big it is.
Ultimately, these are the same principles that have always existed for the traditional high street – putting the right products in the right place for the right people.
Online shopping has come a long way since 1994, so far, in fact, that it is beginning to behave like traditional retail. That could mean a reduced choice for shoppers.