Click & Collect - Calling Time On Store Space?

Philip Clarke, Tesco's CEO, made a speech last week stating that: "...we’ve called time on the old retail 'space race'. We’ve recently opened our 1,000th click and collect collection point..." Is click-and-collect really quite so game-changing?

Well actually, maybe... But it's multichannel game-changing, not necessarily traditional retail-space game-changing by itself.

Not all top UK retailers publish the data, but from those that do, we can see that customers really like this clicks-then-bricks option:

** of eligible General Merchandise sales (i.e. excluding food and impossible items like washing machines and sofas)
* John Lewis state that 34% of John Lewis sales are collected in Waitrose Stores! So actually their figure is probably higher in total. Click-and-collect was offered at 97 Waitrose's and 35 John Lewis's

The latest published data from IMRG indicates that over 10% of all online transactions are now collected in store (up from 7.4% in the previous quarter): more and more major retailers are introducing it, and the take-up is often dramatic.

Some published commentaries are also quite illuminating. First of all this quote from Halfords annual report:

"Our product mix lends itself to a multi-channel offer as customers often want further advice, a demonstration or fitting. Online purchasing patterns reflect this, with 86% of sales on Halfords.com reserved and then collected from a store"

In other words, these customers are basically using the Halfords website as a place to guarantee that the item they want is definitely in stock in a nearby store when the customer makes their visit. Once at the store, the store has little value as a showroom or place to transact, but very high value as a place to get added services impossible to execute online. Interestingly this tends to help validate the KnowHow based strategy for PCWorld and Currys - but it does require your products to be difficult for customers to just point-and-shoot in the first place. These Halfords customers aren't using the store-advice to choose their item, they are using it afterwards to configure it. This is a great differentiator against the online pureplays for bikes, and probably therefore also for laptops, but less good news for e.g. TVs.

Secondly, a note from Sainsburys:

"Customers use Click & Collect for about half of all online general merchandise orders – a figure which rose to 75% for the week before Christmas 2011."

Or in other words, if you could only trust the postal service, then click-and-collect might be less attractive. An alternative explanation is also possible: click-and-collect is almost always offered for free. Customers hate paying delivery charges, and faced with the option of a free collection service compared to a paid delivery, have a natural bias towards the perceived free service, even when there is a hidden travel/time cost. Of major UK retailers, only TopShop seems to be attempting to charge the same for click-and-collect as it does for home delivery. Unfortunately they don't publish statistics indicating how the take-up varies with these fees.

Another quote from John Lewis tends to suggest this TopShop approach is seriously misguided anyway. This, to me, is the most significant data point in the whole click-and-collect space:

“We are seeing about 34% of those visits translating into additional sales in shop and that number is growing exponentially at the moment. It’s typically or increasingly for purchases that the customer didn’t think they would make. So it is quite outwith whatever they were going to collect.”

Customers want to click-and-collect, and then when they do, they find themselves buying extras in the store as well. Sounds like the ultimate retailer win-win.

It's noticeable that fashion retailers are lagging behind this curve. M&S, New Look and TopShop do, but surprisingly few others. Possibly this reflects the in-store space challenges, but Tesco's 1000 Click-and-Collect points now include quite a few Express and Metro stores, especially in central London. If Tesco can fit a collection point in an Express store for awkward boxed items like PCs, then surely it can't be so hard to fit a few parcels in e.g. a River Island store. In fashion, with its high returns rates for home-delivered orders, bringing the customer to store to a) spend more; b) try on, and return or exchange in the store environment must surely make sense?

Perhaps the most interesting experiment in this area in the UK right now is House of Fraser's Buy & Collect only store in Aberdeen.

"...its new 1,500 sq ft House of Fraser.com shop is the first to offer purely a Buy & Collect service... The new format, merchandise-free, store has opened in Aberdeen’s Union Square. Instead of stocking goods that shoppers can take away with them, the emphasis [...] is on personal customer service. Goods ordered from the more than 1,000 brands it stocks can then be delivered the next day to either the customer’s home or to the store for collection."

Another similar shop (in Liverpool) is on the way, suggesting that the first pilot must be going pretty well. Other retailers, watch this space!

Why bother with multichannel? - answer #3: multichannel customers spend more

As I mentioned in the last posts, a challenge I am often posed when I work in less developed internet-retail markets (Poland or Belarus being recent examples) is "why should we bother with multichannel? It is organisationally challenging and expensive, and we are doing fine right now."
So here's yet another answer: multichannel customers spend more. This is actually a very well documented statistic with a long history (the earliest data point I found while writing this was from 2004, but I'm sure someone will point out an earlier one).

How much more? This is rather more difficult to quantify. Laura Wade-Gery, Multi-channel director at Marks and Spencer, can be seen in today's Sunday Times (business section 2nd Sep '12) claiming multichannel customers are worth 4x store-only customers. Anecdotal figures I've heard talking to colleagues and clients are usually in the +50% to +100% range. John Lewis, generally considered one of the most sophisticated multichannel players around, seems to side with M&S appear to be quoting a multiplier of 3.5x, in this study with IDC:

"These multichannel and omnichannel shoppers: spend 3.5 times more; purchase across more categories; shop more frequently; are more loyal and have a higher retention rate"

What more could you want?

And it isn't an effect confined to upmarket UK retailers like John Lewis or M&S. A 2010 study for the US National Retail Federation found that: "39% of retailers describe cross-channel customers are significantly more profitable than single channel customers. In 2007, this figure was 18%." Of course this might be that US retailers have become better at measuring it, rather than any trend change, but nevertheless the effect is still reported consistently.

OK, these customers are more profitable, but by how much? IDC research from late 2009 apparently provides the answer: "findings show that, while multi-channel shoppers spend, on average, 15% to 30% more with a retailer than someone who uses only one channel, omni-channel shoppers will spend 15% to 30% more than multi-channel customers." Ah yes, it's those omni-channel customers again.

Accenture always likes to get in on the act, so here's the data from their more recent (Jan 2012, and European not US) equivalent study: "more than three quarters (76%) of the retailers surveyed report the multichannel customers spend more than their single-channel customer counterparts, and one third (32%) said that multichannel customers spend at least 26% more than single-channel customers."

Deloitte seems to think this is all a bit too conservative: "Multi-channel customers spend 82% more per transaction... The average expenditure for multi-channel customers across the clothing, home and electrical categories is £116 per transaction compared with £64 for store-only customers".

Everyone likes a graph, so Deloitte helpfully provide one in this report. Unfortunately it's not apparently supported by any referenced data/survey, so it's completely unclear if these figures are just plucked out of thin air. The impression from the rest of the study is that they may just be "illustrative" to use a polite word. But it's a nice graph so I'll show you it here:

Lots of nice growing bars!

Incidentally there is the ominous (if dubious) deduction possible from the Electrical bars that stores are a complete waste of time... See my previous post on this topic.

There's a nice piece of jargon for all this: the 'multichannel halo effect', which I think has made the leap from brand-marketing to retail. I rather like the pseudo-religious connotations of this term: it would certainly make convincing my clients easier if the question "why bother with multi-channel?" could be answered "because God says so"!

Fix cross-functional before you try do cross-channel

Having singled-out River Island rather unfairly in the last post, another interesting site issue in which they appear to be in rather elite company.

Their home page featured a rather nice promotion "after dark":

Maybe I'm just not your typical customer, but I did an obvious thing and typed "after dark" into the search box.:

and there it is... no search results. Sloppy, but is this just River Island, who to be fair are hardly a top 10 internet retailer? Let's take a look at a few who are.

Marks and Spencer, for example. Here it is, big banner for an event named "shwopping":

But apparently the M&S search doesn't believe in this nonsense. Instead it thinks I've mistyped the word "shopping" and, better still, helpfully offers to sell me a dictionary to help my spelling:

Maybe this is connected with having their site running on Amazon's system. I'm going to spare you the screenshots, but Amazon is currently running a "summer of sport" promo on my version of its homepage; entering "summer of sport" in their search just offers me some obscure Kindle-only book with this name, followed by a digital camera.

Debenhams goes one better, or rather worse, by apparently not believing in the existence of its own sale event. Here's the home page...

and here are the search results for "half price sale":

"Did you mean halo price sale?" Well no I didn't actually. And I certainly don't want to see a pathetic 2 items, both on discounted promo but neither at half price.

The point of all this is that these sites just don't seem to have their internal teams working together. In most retailers online merchandising and marketing, search, and product data admin are owned by separate functional areas. A typical set up would be to have these three tasks owned by web-merchandising, IT and category management respectively, although it varies in each retailer I've ever worked with. And quite clearly in River Island, Debenhams and M&S, they aren't speaking to each other.

By contrast lets look at a couple who get it right, in two different ways. First of all John Lewis's clearance event. Homepage banner:

And search results for "clearance":

Very simple and effective: the search just drops you straight onto the clearance page. Minimum  site maintenance effort, maximum customer journey coherence.

Finally, Tesco Direct, which goes the whole hog. Again first the banner:

and now the search results for "summer of sport":

Someone has gone to the effort of tagging every one of these 73 products in their product master data with "summer of sport", their search algorithm has been adjusted to prioritise the phrase, and the whole thing coordinated with site merchandising. Full marks for both effort and results, for getting the basics right, and evidently for having a proper cross-functional team managing (and testing!) it all.

Full marks also for recognising that site & search admin is a time consuming, labour intensive task and managing it. It's analogous to refilling the shelves and sweeping the floors in your brick-and-mortar stores: difficult to automate, human-intensive, but an essential success factor.