January 20, 2012

Ex-Aldi UK boss Paul Foley goes eCommerce

Paul Foley, senior partner CONplementation (photo: LZ-Archiv)
Paul Foley: “What you absolutely don’t want as a retailer is for people to visit your store, look at the product, and buy it online elsewhere"
What's Paul Foley up to these days? This question has been spooking the trade for quite some time. Since his surprising departure as Aldi UK boss in 2010, after a long and successful career with the German discounter, Foley seemed to go completely off the radar.

Then, out of the blue, this energetic Londoner suggests a meeting at his new office in Vienna. Foley and eastern European retail expert Peter Györffy are now two of five senior partners at CONplementation, a strategic management consultancy specialised in retailing.

Foley, who has become something of an online convert, leads an internal project team dedicated to multi-channel retailing. They have conducted some revealing market research into the world of eCommerce and the online buying habits of consumers in western and eastern Europe. But can a discount veteran really become a cyber-freak overnight?

From Aldi to online 
 
The reason for the present invitation was primarily to discuss the results of this study entitled “The Compelling Case for Multi-Channel Retailing”, although this necessarily involved a review of the current state of the industry.

Clearly, the whole online segment has been growing fast. According to Internet World Stats and MasterCard, 2.1bn people already use the internet worldwide. Their number has quintupled since 2000.

Europe is the largest eCommerce market in the world. Its almost 500m internet users reveal a penetration rate of ca. 60 per cent (ranging from 80 per cent in the UK and Germany to 45 per cent in parts of Eastern Europe).

Datamonitor estimates that 48 per cent of retail purchases in mid-2011 involved some form of consumer online activity (via direct orders and/or through product research on the internet).

CE and books lead online revolution
 
The lead markets are consumer electronics and books rather than food retailing. For instance, Douglas Holding book shop subsidiary Thalia expects around half of its annual revenues will be achieved via the internet by 2017 (eBooks or online orders for books).

In another important non-food area, Austria’s Humanic is already the second-largest shoe retailer in Europe after Germany’s Deichmann and is developing a significant e-business.

Research by CONplementation into UK online spending ($35bn) by sector in 2010 reveals a number of general customer preferences: food & grocery (29 per cent; but this includes fast food ordered online), electricals (21 per cent), clothing & footwear (11 per cent), music & video (8 per cent), DIY (6 per cent); and home ware (6 per cent).

In Russia, CONplementation asked 16-to-49-year-olds which products they have already purchased online. In descending order these were: toys, blouses/shirts, perfume, mascara, laptops, running shoes, LCD TVs, and tennis racquets.

Again in descending order, Russian consumers most often use price comparison sites for consumer electronics, sports equipment, books, CDs and DVDs, clothing, and decorative cosmetics.

Sceptical about pure players
 
Despite this sales activity, Foley remains generally sceptical regarding pure-player (internet only) online retailer earnings. As a former hard discounter used to doing his sums, he also doubts whether many a vaunted online food home delivery service such as Ocado, Peapod (Ahold) or even Tesco.com yet make a profit on a full-cost basis.

Foley does admire, however, how the online industry has convinced the international financial community to invest in its products despite the dotcom bubble.

Doubters need look no further than Facebook’s forthcoming IPO. A share value of up to $10bn could well be raised in what is likely to be the biggest tech deal in history. “Given how little money is actually made below-the-line, investor confidence in online retailing is astonishing, but remains a vital and indisputable fact,” Foley says.

Meanwhile, customers are deciding with their wallets. By 2014, European eCommerce will be worth $203bn, thus representing the fastest-growing retailer channel globally. According to Euromonitor, eCommerce in Europe is growing at an annual rate of 14 per cent and is projected to reach more than $315bn by 2020.

Big growth, fast change

Foley sees a number of reasons for this impressive growth: the rise in one-person households and the need to purchase smaller quantities; the trend towards convenience and the wish to purchase “anytime, anywhere”; time-poor consumers who are spending less time in front of the TV and more time online; consumer empowerment; a higher demand for entertainment products; and the growing use of gadgets and compact appliances.

The rate of change is giddying. As Foley points out, it is astonishing how recent today’s household names on the internet are. Even the world-wide web didn’t really exist for consumers until at least 1989. A look at the dates proves his point: amazon.com (1994), eBay (1995), Google (1998), Facebook (2004), YouTube (2005), twitter (2006), Groupon (2008) etc.

The whole process of change is being accelerated still further by technological developments. Consumers are increasingly using their Smartphones to make in-store price comparisons or as a method of payment.

“Smartphones will replace the wallet,” says Foley. They are also generating shopping lists, recipes, and marketing messages. Via geo-marketing apps, stores can automatically send an SMS to passing pedestrians and car drivers reminding them of items they need to buy.

Obviously, the question arises as to how this rapidly-growing business potential can be harnessed most effectively. CONplementation’s research therefore analyses the comparative strengths and weaknesses of traditional bricks & mortar companies, “pure players” (internet-only), and multi-channel operations.

SWAT analysis: pure players vs. bricks & mortar

For instance, pure players offer 24/7 convenience of access, price comparisons and availability checks, as well as product reviews. However, unlike traditional bricks & mortar retailers, they do not allow customers to touch products which are immediately available. Also, they provide no personal consultation or human contact.

More importantly still, only bricks & mortar retailers can offer retail theatre. “One should never assess physical stores by their annual revenues alone. Never forget that they can also have a motivational effect on your online sales.”

It is not by chance, Foley argues, that Walmart tested two “Walmart.com Stores” in US shopping centres over Christmas. Customers were able to view and test a selection of electronic gadgets and toys etc., but could only buy them online. Obviously, the world’s largest bricks & mortar retailer is trying to assess the knock-on effect for its own online division.

Overall, Foley and his team favour an integrated multi-channel (clicks & mortar) approach as the best model for retailers to adopt. „Retailers must leverage the advantages of both channels, as consumers clearly favour this approach,” Foley says.

This does not necessarily mean home delivery, Foley emphasises. “You don’t have to be at the customer’s front door! There are a lot of other options.”

Click & collect

One of these could be the “click & collect” model, as demonstrated by Leclerc, Auchan or recently also Tesco. Drive-ins allow today’s increasingly time-stressed customers to order online around the clock and to pick up their goods from a collection station or at their local store.

However, this only works well when there is an efficient returns policy and where the retailer takes every opportunity to profit from knock-on business. “Not to sell your customer at least an app and a customer card while he or she is waiting at the collection point is nothing less than stupid,” says Foley.

The ex-Aldi man is convinced that, if retail locations are also to become pick-up points for online orders, they will have to offer excitement and a unique experience. This is particularly true when, for instance, Amazon offers money off to US consumers who scan prices in stores with its Smartphone app and then buy the goods on Amazon.

“What you absolutely don’t want as a retailer is for people to visit your store, look at the product, and buy it online elsewhere. So clinch the deal before the customer leaves your store.”

Tesco Korea's virtual store

One instance of the huge business potential created by combining clicks & mortar in a creative, customer-centric business is illustrated by Tesco Korea.

Last year, the UK-based retailer created visual displays in Seoul subway stations which are identical to merchandise in the real store. Commuters are able to scan item codes while waiting for the train to work. Later on the way back home, they can pick up their orders from a local store or have them delivered home in time for the evening meal.

According to Springwise, the idea has already generated 76 per cent more online shoppers and 10,000 new customers to the stores. Online sales at Tesco Korea are said to have jumped 130 per cent.

DiTech beats Media-Saturn in Austria

By contrast, a reluctance or hesitation to diversify into online can have serious consequences for traditional bricks & mortar retailers. Foley believes this was, for instance, the main reason why Metro Group subsidiary Media-Saturn, the largest electronic retailer in Europe, had no sales growth in 2010 for the first time in its 30-year history.

He compares this stagnation with the younger Austrian computer store retailer DiTech, founded in 1999 – 20 years later than Media-Saturn. As a “bricks & clicks” retailer with 16 stores and eCommerce business accounting for 40 per cent of annual revenues, sales at DiTech increased by more than 30 per cent in 2010.

Finally, Foley is astonished since having become a consultant at the naivety of some of his former fellow retailers. “They tend to believe that simply starting an online shop or making an entry in Facebook or twitter will do the trick. They totally underestimate the extent to which online will change the existing business scenario.”


Related article in German: By Mike Dawson in Lebensmittel Zeitung, no. 3, 20.01.2012


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