October 5, 2012

Brave new omni-channel retail world

Philip Clarke, Tesco International CEO (photo: Mark Mackenzie)
Tesco CEO Philip Clarke: “The online and offline retail experience needs to be like a bespoke, handmade suit”
At this September’s World Retail Congress in London, one subject seemed to dominate top British retailer minds: online.

This is hardly surprising in a country where ecommerce has a world-leading retail share of 9 per cent which could increase to 25 per cent by 2020. But how are still essentially store-based retailers coping with the challenge?

Whether Tesco, Marks & Spencer or John Lewis Partnership, many UK retailers intend to ramp up their digital offers while integrating them more fully into their physical store bases.

Becoming a truly multichannel retailer, however, is easier said than done on a home market in the grip of a double-dip recession. Increasingly digital-savvy consumers are ruthlessly comparing prices via mySupermarket etc., and half the clicks on Tesco.com are price comparisons. 

The looming spectre of Amazon

CBI president Sir Roger Carr sums the situation up perfectly: “Customers prefer to pay down debt rather than consume, and young people sport top brand names on their trainers but have no hope of a job.”

This horror scenario for physical retailers is completed by the looming spectre of Amazon. The world’s largest internet retailer has quadrupled revenues in only five years, and some pundits believe that it could outgrow Walmart by 2022.

The Seattle-based giant is certainly taking money out of a flat business by widening its merchandise categories and international penetration.

Winner John Lewis

The sum of these pressures inevitably creates winners and losers. Sales at John Lewis, whose online activities (home delivery, click & collect etc.) now contribute over a quarter of consolidated annual revenues, grew 9 per cent last year.

The London-based company has invested heavily in its cross-channel offer throughout the downturn. The result: a solid and trustworthy retail brand is now viewed as innovative and cutting edge even by young consumers.

According to Chairman Charlie Mayfield a further £450m have been earmarked for multi-channel investment across the partnership this year.

Tesco calls an end to the space race

Meanwhile, Tesco, which issued its first profit warning in 20 years this spring, and Marks & Spencer, whose revenues have continued to decline since the 2011/12 March results, still hope that high tech will reboot flagging sales in the UK.

Tesco has little choice. “Food shopping online is all the growth we have in our core food business in the UK,” admits CEO Philip Clarke.

Thus, the UK’s largest retailer by sales aims to double online revenues (2011/12: £2.8m) within the next five years. Tesco.com will be extended to Bangkok, Shanghai, Malaysia, and Budapest “very soon”. The multiple will also continue to open click & collect points in its stores (currently 1,000, including 70 for food).

Parallel to this, Tesco is reducing the rate of new store openings and average sales surfaces in the UK while freezing international expansion to any new countries. “We’ve called time on the old retail space race…we will build more (stores) but they will be smaller.”

Downsizing in an omni-channel world

This was echoed by Kingfisher CEO Ian Cheshire who is reassessing the company’s 360-strong B&Q store portfolio. The company wants to determine what size estate it needs in an “omni-channel world”. Average DIY outlets of just over 9,000m² could be downsized by 20 per cent through, for instance, subletting them to other retailers.

With the UK’s largest store base and land bank on its hands, Tesco, however, was clearly never going to espouse replacing physical outlets.

Here, Sir Philip Green, owner of Arcadia Group, was able to speak more freely: “Let’s face it, if we were starting again with a blank sheet of paper, most of us retailers would prefer fewer stores. Ideally, you’d have great flagships, some small outlets in residential areas, and a strong online business.”

Instead, Tesco’s boss proposed an integrated approach: “The online and offline retail experience needs to be like a bespoke, handmade suit – seamless and personalised to the customer’s needs.”

This sounds impressive, but here the sceptic is tempted to read more Dunnhumby and Tesco Clubcard, come, dear customer, what may.

Low prices – the best loyalty scheme

David Cheesewright, President & CEO, EMEA Region, at rival Walmart International, is certainly not convinced: “Low price is our best loyalty scheme…Customers would not choose to have ten different loyalty schemes given the choice. They want it to apply wherever they go.”

Tesco’s hymn to its own Clubcard also seemed to jar on Yilmaz Yilmaz, Chairman of Koton and BMD: “There are more and more loyalty programmes at a time when customers are becoming less and less loyal. I don’t believe in them. Instead we are trying to improve our operational efficiency.”

Integrated with loyalty cards or not, digital retailing clearly hasn’t killed its older sibling, bricks & mortar. According to Google MD Dan Cobley, 37 per cent of click & collect customers make incremental purchases when they come to a store.

Some retail gurus even see pure e-commerce players at a disadvantage to physical store owners because they can’t provide a shopping experience.

Laura Wade-Gery, executive director, multi-channel & eCommerce at Marks & Spencer, gives an interesting example: “It is not unusual for customers to view a product in-store and then to order it online for home delivery. But if they want to return it, they prefer to do so at the store because customers enjoy the physical experience of getting their money back.”

Many UK and international retailers are therefore experimenting with so-called digitally-enhanced destinations where online offers are integrated in-store so as to create an omni-channel experience for their customers.


Related article in German: By Mike Dawson in Lebensmittel Zeitung, no. 40, 05.10.2012


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1 Comment (Write a comment)

  1. Created 8 October, 2012 10:15 | Permanent link

    Actually it's not the 9% online retail share *average* which drives all this. It's the concentration of that share in particular categories / consumer segments which motivates all the focus from retailers. To pick a few examples:

    - office products have a c. 35% online share. Therefore if you aren't online, you have a big problem
    - DIY has only a c. 5% online share. Not such a big problem now, but it's changing fast
    - Grocery has only a c. 4% online share. But in baskets > €100 (minimum economic size for online grocery), it has a c. 20% online share.

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