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Digital Retail News

What should retailers do to win the online fulfilment battle?

John Lewis 2

What does the decision by John Lewis to charge a fee for click & collect services mean for the wider retail industry?

John Lewis will introduce a fee for its click & collect service at the end of this month, a bold move by the department store retailer who is saying it can no longer swallow the cost.

But as click & collect has become the norm for UK online shoppers, will other retailers risk implementing a similar move in order to save fulfilment costs?

The cost of serving online customers can be up to three-times that of store customers and John Lewis has decided free click & collect for small orders is unsustainable. The department store retailer has already seen the share of its capital expenditure it spends on IT grow from 15% to 37%, as the digital era has evolved – a cost which naturally impacts margins and the all-important bottom line.

Click & collect war

Click & collect has been one of the major battles of the retail fulfilment war, with John Lewis being among retailers like House of Fraser, Debenhams and Marks & Spencer who have upped the ante. Due to each retailer trying to outdo the other, customers now expect to be able to pick up their online orders in store the next day free of charge.

But by the end of this month, customers who spend less than £30 on will have to pay a fee of £2 to collect their orders in store. This is £1 less than its £3 charge for standard UK home delivery on orders less than £50.

Managing director at John Lewis Andy Street said: “There is a huge logistical operation behind this system and, quite frankly, it’s unsustainable.”

In March, the department store retailer cited 60% of online orders are received by customers through the click & collect channel. But Street said the £2 cost will affect the minority of click & collect customers, with around 20% of customers spending less than £30.

Independent retail analyst Nick Bubb pointed out that Sports Direct was the first to speak up about the cost of providing a free click & collect service, and the retailer has been charging customers the same amount as home delivery (£4.99) for the privilege of picking up orders in stores.

Real time visibility of stock

The main reason for the cost is because the thousands of orders have to be picked from John Lewis’ distribution centre in Milton Keynes over night, and then shipped to John Lewis or selected Waitrose stores across the country.

George Scott, senior consultant at industry analyst group Conlumino, said retailers should be investing in IT to provide real time visibility of stock. This would provide the capability to ship from store, something that cannot be done unless retailers know exactly what stock is in each store on a real time basis.

“If you can ship between stores, it is a lot cheaper and you can promise the customer a shorter timeframe,” he told Essential Retail.

The Amazon effect

The John Lewis news comes a day after Amazon announced the arrival of its one-hour delivery service in the UK. Customers with a Prime membership – at the cost of £79 per year – can choose the one-hour option seven days a week for the additional price of £6.99. But customers willing to wait two hours, or same-day delivery can choose free delivery.

Scott said this fulfilment trend by pure-play retailers is only going to continue. “It is because [delivery and click & collect] is built into Amazon’s business model. And part of what they do well is sell online and deliver from warehouses at scale. But for a physical retailer is it much more costly.”

Will retailers follow John Lewis’ example?

But where does that leave traditional retailers? Will they continue to compete in the fulfilment battle by offering free click & collect services, or will they begin charging like John Lewis?

Scott thinks John Lewis can get away with asking for this fee because there is a strong trust in the brand and the average customer is fairly affluent. “Debenhams would have a more difficult time,” he suggested. “Other retailers may decide to charge a price for premium [next day] click & collect, but also provide a basic service to keep people interested.”

“If you’re a physical retailer the future will look very different,” said Scott, who suggested click & collect’s future may lie with third party collection points like local shops, Collect + and retail partners such as Boots and WHSmith. “And if that happens there will probably be a charge as the retailer won’t be delivering to their own stores.”

“The line between delivery and click & collect is blurring,” he added. “But the key thing is to give customers choice.”

Source : Caroline Baldwin - Essential Retail

03 July 2015

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