Tesco finished fourth in the Retail Week Indicator after a strong showing across the board, but could have placed higher were it not for the closure of its Tesco Direct non-food website.

The supermarket giant opted to scale back its exposure to a number of general merchandise categories and will instead sell smaller electricals, toys, games and clothing through its existing Tesco.com grocery platform.

It was a move that came as no great surprise given a similar decision by Asda more than a year ago to integrate its online general merchandise offer with its grocery website.

Tesco has also been focusing its online strategy around boss Dave Lewis’ wider plan to “maximise the mix” – shaping the product offer around boosting margins.

The retailer’s ecommerce offer is failing to bring in margins as healthy as Lewis’ 3.5%-4% target – as the former Unilever exec has been at pains to point out in Tesco’s recent results presentations – and general merchandise was proving a particularly tough problem to fix in his efforts to make its digital division more profitable.

Having stopped selling bulkier electrical goods like dishwashers, washing machines, TVs and laptops in its supermarkets – and piloting a shop-in-shop tie-up with Currys PC World to fill that bricks-and-mortar void – stepping away from those categories online was the logical next step.

infographic_Artboard 1 copy 4

Losing digital capabilities

Tesco pulled no punches in its assessment of Tesco Direct, claiming there was “no route to profitability” for the loss-making business after facing “a number of significant challenges”, including high costs of fulfilment and online marketing.

But a number of capabilities that helped make Tesco Direct such a straightforward shopping experience could also be lost in the move.

Its live chat function, for instance, is yet to be transplanted to Tesco.com and it is unclear whether there are plans to do so at this stage.

Tesco Direct provided users with numerous product images and often videos, as well as detailed product descriptions and customer reviews, so that users could be confident they were making the right purchase.

Displaying store stock availability was another impressive feature on Tesco Direct, allowing customers to see where their product was available and could be collected from.

Such information is much more limited on Tesco.com and it will take time for the business to migrate such valuable features from Direct to its transactional grocery platform. 

Focus on delivery

Tesco, however, has not been afraid to make some difficult decisions under Lewis’ tenure and condensing two transactional websites into one forms a key part of Tesco’s wider ecommerce strategy.

Britain’s biggest retailer is instead focusing its time and capital on digital capabilities it knows matter more to its customers, with the need for speedy delivery being top of the list.

The grocery titan is ramping up its online fulfilment credentials, introducing a same-day click-and-collect service at 261 of its larger stores.

It has also launched Tesco Now in parts of London, which delivers baskets of up to 20 items to customers’ homes within 60 minutes as it seeks to compete with the likes of Amazon and Sainsbury’s in the increasingly competitive area of fast fulfilment.

Lewis has always remained tight lipped about such innovations and steadfastly maintained Tesco will always “tell customers first”.

But with further ecommerce evolution almost certainly in the pipeline as Lewis presses ahead with that margin recovery, Tesco offers a solid example of how to adapt to make money online.

Retail Week Indicator 2018 rankings