Analyst looks at how the High Street is handing revenue to its online rivals

Software sales

The UK boxed software market has been moving toward online distribution since the major multiples made the conscious decision to focus on key volume segments and scale back specialist software offerings. As a result we have seen these specialist software segments only being focussed on by the traditional retailers in key seasonal periods, where stock is unlikely to be left languishing on the shelves for long.

Whilst this makes prime business sense from a retail perspective, it has forced many of the smaller vendors out of the stores, and onto the internet where they have seen some success working with the ‘pure players’.

The result of these shifts has been a fairly inevitable decline of the specialist segments in volume terms. With the exception of the office and security software sectors, the majority of the rest of the boxed software market has been in year-on-year volume decline. Without a visible presence on shelves, vendors are reliant on consumers knowing their brand, and which particular product they are after as they fill in the online search box. Without the ability to make a significant investment in online marketing, some of the smaller brands are finding themselves lost in the crowd.

Such heavy reliance on online distribution has its drawbacks, however. We have already seen the precursors to what is being touted by weather forecasters as a stiflingly hot summer. In Week 22 2009, the software market hit a blip as internet sales dropped over a quarter in comparison to the previous week, 9.3 per cent down on the same week in 2008. With temperatures soaring, the sun shining, and the Spring Bank Holiday Monday affording people time off to get out and do something, the prospect of internet shopping was apparently less attractive.

Whether this behaviour will replicate over the longer summer period is unknown. However it is not without precedent, as similar trends were evident over an unseasonably warm April 2008 in particular. As a result there are opportunities for bricks and mortar retailers to capitalise on the increased customer presence on the High Streets and re-embrace the specialist segments.

The launch of 2010 software lines on the horizon, the start of the back to school period in sight, the summer months and a heady Q3 offer the potential to be a strong time for the software market, despite the difficult economic times we live in. Demand for software is unlikely to drop considerably on Q3 last year, over which just fewer than one million software boxes were sold in the UK. Especially since prices have continued a long term downward trend which has resulted with software average selling price £10 lower than in the May period last year.

It is up to the retail sector to re-engage with online shoppers in the High Street, especially at a time where the price differential between online savings, and offline promotional prices is at its lowest point in the year.

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