As the online retail giant continues its march into new categories and widens its delivery offer, how will the rest of the industry compete?
Short-term gain for long-term pain is the order of day for too many retailers.
We’ve seen this with John Lewis, among others, charging customers to click and collect orders below a threshold. It’s a reaction to the struggle to make appropriate margins on online orders.
One reason for the margin issue is because John Lewis fulfils click-and-collect orders from its distribution centre, and not stores. This means it can only offer a next-day click-and-collect service, and raises the question of whether the operating model is appropriate to meet customers’ needs.
While John Lewis downplayed the £2 charge – only 18% of collected orders fell below its £30 threshold – that’s missing the point.
Free and convenient fulfilment has become a core part of consumers’ multichannel experiences. So retailers will struggle to wean customers off free delivery or collect offers.
Retail Week’s research last year found three-quarters of consumers did not believe they should pay for click-and-collect.
“Amazon’s continued march into new categories, along with market-leading fulfilment and one-click ordering, makes it increasingly likely that even retailers’ most loyal customers will have their heads turned”
Martin Newman, Practicology
I also appreciate the requirement to deliver shareholder (or partner) value. However, sometimes you must play a longer game than many multichannel retailers have been prepared to play.
In December it was revealed John Lewis will plough £500m into driving online sales (including staff, systems and warehousing). Hopefully this includes examining its business model to deliver customer experience improvements.
My fear for retailers is trouble’s being stored up by targeting shorter-term financial goals over ensuring a relevant customer experience. And that is the threat from Amazon.
Amazon’s continued march into new categories, along with market-leading fulfilment and one-click ordering, makes it increasingly likely that even retailers’ most loyal customers will have their heads turned. Adding value to its free delivery Prime subscription with access to movies, TV and music, shows it’s not scared to buy loyalty too.
I’m not suggesting customers will abandon multichannel retailers altogether. But they will increasingly buy from whoever provides the strongest value proposition – combining range, value and convenience/service.
Amazon’s move to open bookstores and sell own-label fashion must be sending a chill down retailers’ spines. How long before it opens grocery outlets, stores selling other categories or buys Ocado for its market-leading grocery distribution?
I’m sure these are the key drivers behind Sainsbury’s proposed acquisition of Argos. It enables the grocer to broaden its range, and it’s acquiring a distribution capability that arguably competes with Amazon’s.
What are the barriers to delivering the relevant customer experience? Legacy systems and siloed organisational structures are no longer a valid excuse.
Yet most retailers still structure around channels and not around the customer. In order to be relevant, retailers must rethink their operating models. Systems, people, cultures and processes all need to be changed to meet the needs of multichannel customers.
I keep hearing the term, ‘digital transformation’. Maybe that’s the answer? No, it’s a misnomer. Digital is technology. It’s the conduit to delivering the appropriate customer experience, not the starting point.
Can retailers really disrupt already well-defined customer journeys and requirements? Or do they need to redefine their own operating models in order to maintain their relevance to their customers?
I firmly believe it’s the latter.
It’s the law of the jungle: only those with relevant operating models will survive.