In an attempt to make shopping more convenient for customers, increasing numbers of UK retailers now offer a click-and-collect service as well as traditional location shopping.
Although it is a relatively new battleground for retailers, click-and-collect has proved extremely popular with customers over the past five years and if planned and managed successfully, it can offer rich rewards to daring businesses.
However, the costs of providing click-and-collect are typically higher than location shopping and several retail giants fear that supplying this demand will ultimately lead to ‘cannibalisation’ of more profitable sales.
John Lewis is amongst several retailers that have seen demand explode for its click-and-collect services recently and has reported a 32% increase so far this year.
Since 2008, the retail giant has grown from 350,000 click-and-collect orders per year to over 6 million, and now processes tens of thousands of orders every night.
Although seemingly effortless for the customer, providing click-and-collect is anything but for retailers, who require a small army of pickers and delivery staff and often additional warehousing space.
The cost of meeting this growing demand has been huge for retailers and John Lewis recently announced that it would have to start charging a £2 fee for click-and-collect orders under £30, as it had become unsustainable to provide the service free of charge.
John Lewis is by no means the only retailer that is having to move fast to cope with this booming demand and industry body, IMRG, has reported a 20% per year growth rate in click-and-collect across all retailers.
While John Lewis has been able to embrace this surge in demand, retail analysts report that it has caused significant problems for a number of retailers – particularly large UK supermarkets.
Marc de Speville, founder of Strategic Food Retail said that the phenomenon is adding to supermarkets’ woes, rather than easing them.
Mr de Speville said that [providing a free click-and-collect service] is “clearly a burden on supermarkets’ already slim margins, as it does not bring in nearly enough incremental sales to cover the extra costs involved.”
“Even Tesco, which charges £4 for click-and-collect orders below £25, still has to heavily subsidise orders above this amount” he adds.
“Whether orders are picked up in store or delivered to the home, online adds considerable cost and complexity, but very little in the way of additional sales.”
Supermarkets have already fallen under pressure from discount retailers to reduce their margins and regain lost market share. However, as the online market grows these margins are likely to be eroded further.
What’s worse for supermarkets is that online orders are subject to diseconomies of scale; de Speville reports “Once online sales account for around 10% of a store's sales, picking of products has to be moved out to dedicated warehouses or ‘dark’ stores.”…….“This can duplicate running costs and means customers are less likely to visit physical stores, making them more of a drag on profits.”
He envisages that this “online cannibalisation conundrum” will be a greater threat to supermarkets long-term profitability than discount retailers such as Lidl and Aldi.
Some retailers have made click-and-collect work for their business, but so far the supermarkets have certainly been on the losing end.
Phil Dorrell of Retail Remedy consultants says “Any complexity just costs more. If [click-and-collect] is not offset by an increase in market share, it’s not really worth it.”
He points out that Asda’s “ambitious targets” have seen the retailer pile resources into click-and-collect, but that it “hasn’t done them any favours”, as the supermarket chain has continued to lose market share.
Even Morrisons, which is apparently “not fussed about click-and-collect” and “has at best, been testing the water,” has also lost market share.
On the other hand, retailers such as Next and Amazon have been particularly daring in their customer-focussed strategies and have benefitted from first-mover advantage.
“Next don't really put a foot wrong,” Dorrell says. “If you order from Next by 10 o'clock in the morning, your order is ready the next day”.
Amazon have also been “doing fantastically well,” he adds, and the company has recently trialled a one-hour delivery service in London.
Mr Dorrell believes that strong leadership has been the common characteristic of success for the two firms.
“It’s about being able to see where the market's going, and being able to make strategic adjustments.”
Are you a retailer? If so we’d love to hear your opinion. Do you provide click-and-collect? Would you consider introducing it?
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