Click happy

Hannah Prevett looks at the rise and rise of Click and Collect and the resulting benefits and challenges

Argos bosses have plenty to be happy about. It wasn’t so long ago that the retail chain faced criticism for its vast real estate portfolio. Analysts predicted that maintenance of its network of more than 700 stores could prove fatal as an ever-increasing proportion of consumers deserted the High Street in favour of internet shopping. But what they couldn’t have predicted was the rise of Click and Collect – an area where Argos is a real trailblazer – and how it helped the company become relevant again. The impact on its bottomline is clear. Of £4 billion of sales last year, 44 per cent were on the internet and 32 per cent of those customers used the company’s online Check & Reserve service. By contrast, just 12 per cent of internet-led sales were fulfilled through home delivery. It’s no surprise then that the company is continuing to place big bets on Click and Collect. “Increasingly customers will seek local product collection, and will appreciate face-to-face customer service,” said chief executive John Walden, in parent company Home Retail Group’s recent financial report.

Argos’ findings are symptomatic of a wider trend amongst consumers. Last summer, Network Rail said 30 million people, equivalent to 59 per cent of British consumers, now use Click and Collect services. And that figure is only set to rise further. Customer expectations have almost gone full-cycle, says Rupal Karia, managing director, retail and hospitality, at Fujitsu. “Many years ago, the norm was that everything was done in person. Then we went to the telephone. After that, the internet came along and was the next evolution. Click and Collect is a bit of a hybrid; it’s a mixture of in person, on the internet and potentially on the phone.”

Retailers have good reason to push it as a fulfillment service. For starters, they are beginning to feel the financial strain of providing cheap or even free deliveries, says Sarah Kellett, associate director of consumer facing industries at Fujitsu. She has first-hand experience of the challenges of the retail environment as she spent 19 years working in operations at Harrods.

“When many retailers started their online businesses, they said, ‘let’s just do it. Let’s sort it out, no matter what it costs.’ The problem was it didn’t really receive the financial scrutiny that it should have done because it was a very small percentage of the trade and there was a sense of urgency just to get it done,” says Kellett. “The reality now is that customers have come to expect things of the online delivery service. They have come to expect they can pay £3 or £5 for it, whereas in reality it’s costing about £12 or £15 for the retailers.”

In the flesh
Reducing the costs associated with delivery is not the only benefit for retailers. Another is the so-called ‘halo effect’ of would-be customers who come into stores to collect items ordered online and then buy additional products. “Click and Collect has the benefit that the customer comes into their store and actually gets a chance to experience the brand in the flesh and the retailer has the opportunity to expose them to a broader range of products and services,” explains Oliver Vernon-Harcourt, a director in the retail practice at Deloitte.

The big wins here are for the large supermarkets that already have huge networks. John Lewis uses sister company Waitrose’s store portfolio to disseminate its products. In turn, customers are rewarded for choosing to collect items at a Waitrose store, instead of opting for delivery – not in monetary terms, but they are offered a free coffee and a newspaper.

Kellett suggests that this is a sign of things to come. “Effectively, what Waitrose do is give customers a coffee, which would cost £2.50, and a newspaper to entice people into store. They know that while people are in there they also pick up things they didn’t plan to buy.”

Going one step further, Karia suggests that retailers might eventually think about passing savings more directly on to customers. “For the grocery market in particular, you can see [the argument for,] ‘well, why wouldn’t you give more of an incentive to collect in-store?’ Say it costs £4 to deliver to a customer, and it probably costs more than that, if a retailer gave somebody £4 or even £2 off their shopping, would they be more likely to collect it? Probably.”

One of the biggest challenges for retailers offering Click and Collect is ensuring they have a clear line of sight into stock and inventory. Customers need to know that if they reserve an item, it will be there waiting for them when they go to pick it up. “The biggest single challenge [for retailers], with not just the shop model and not just with Click and Collect, is stock visibility and stock accuracy. It needs to be operationally efficient as well as a great customer experience where you fulfill the customer’s order 99.9 per cent of the time,” says Vernon-Harcourt. “If you don’t know where your stock is and how much of it you’ve got, it’s always going to be difficult.”

This is one area where the pureplays may have an advantage. While multi-channel retailers have started from the perspective of a store-based network, where items are shifted around on pallets, online retailers have been dealing with individual items from day one. “Clearly, some of the pureplay retailers have an inherent advantage in that they have built their supply chains the other way around – they have started at the individual item level and grown from that,” he adds.

But it’s not all bad news for the multi-channel behemoths. Whilst their supply chain infrastructure may need to be upgraded, the store networks are invaluable. And the pureplays know this too. They have two options in order to provide a Click and Collect service to customers. Firstly, they can partner with a large retailer, as online auction giant eBay has done with Argos. In September 2013, eBay signed a deal that meant its customers could collect their items from their local Argos store. So they no longer had to wait at home for deliveries but instead could get them from a store at a time that suited them.

The second option is to effectively outsource the collection point to a third party. Courier companies were the first to get in on the act. myHermes has partnered with more than 1,500 convenience stores in the UK to offer customers local collection points. It’s going great guns: the myHermes service is already handling more than 100,000 parcels a week. Meanwhile, Network Rail teamed with entrepreneur Lloyd Dorfman to launch Doddle, which plans to open Click and Collect stores at more than 300 stations in the next three years. But retailers need to think carefully when considering outsourcing partners, says Vernon-Harcourt.

“The interesting thing with the third party element, be that a corner shop or a railway station terminal, is that you’re giving away a customer touchpoint to somebody else. Therefore, part of your customer service and part of your customer experience is now outside of your direct control. That, for some retailers, is an important and careful consideration,” he warns.

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