Retail

Retail

Opinions expressed on this blog reflect the writer’s views and not the position of the Capgemini Group

Who pays for the cost of convenience?

Do you fancy a bit of retail therapy when relaxing at home? Why not? Shopping between midnight and 6am is on the rise, and it’s now so quick and painless that you can buy pretty much anything, at any time, from anywhere.

Easy to buy, difficult to deliver?

The Capgemini IMRG online sales index recorded that Britons spent £10.7 billion shopping online during July, resulting in a total estimated spend YTD (2016) of £70.2 billion. It’s clear we love shopping online. We can shop to our hearts content any time we like, but the convenient experience of placing an order is at odds with the restrictive delivery and collection options.

Not many of us are home during the day which gives us a dilemma; order it to the office (frowned upon), order it to a friend (hassle), take our chances with the courier hiding it somewhere in the garden (risky), or use a third party service like Doddle.  You can get your orders delivered to a Doddle station for free and collect parcels after work, or if you’re unlikely to get there before it closes you can even use their ‘Doddle Neighbour’ service and pick it up from someone who lives near you instead. These types of options offer the convenience and flexibility needed to complement our increasingly busy and complicated lifestyles - but who is paying for the physical shop and staff to run it?

So, who pays?

We’re a demanding bunch of consumers. Not only do we want increased flexibility and convenience, but we also don’t want to pay for it. According to a recent survey, 59% of customers say shipping costs are the most important factor to influence their purchasing decision and many expect free delivery. In fact the average cost of sending a delivery through a third-party carrier’s network is between £3 to £3.50. The sums just don’t add up on low value orders. This is one factor that has contributed to retailers, such as Tesco, to raise their minimum spend to £10 for general merchandise or £40 for grocery spends (in addition to delivery fees of £1-£6), or the customer incurs a surcharge (£3 at Tesco). This creates the desired effect and drives customers to spend above the required threshold and spread the load of deliveries throughout the day – particularly into less popular slots (some as late as 11pm).

So we're a tight bunch who don’t want to pay the cost of delivery? Not always. If we’re researching comparable products, we may opt for the more expensive delivery option if we think we can trust the retailer and their logistics promise. 40% of consumers revealed in a recent survey they would be happy to pay extra for a ‘better’ delivery service, where they are able to state the precise time and place of delivery. No one wants to take time off work to accept a delivery to be let down by a no-show.

The same can be said for speed of delivery. Many of us are not brand loyal when it comes to speed of receiving our goods, and at the right price point are prepared to switch to other retailers if it means we get our goods faster.  A new upmarket logistics service for price insensitive customers called 'Henchman' boasts they can collect anything you like by bicycle and deliver it to you within the hour (London service). The charge is £7.95-£19.95, plus 10% of the product value collected. Pretty hefty fees, but with 50-80% month-on-month growth since their initial launch, it’s clear some customers are happy to cover the [high] cost of convenience.

‘Next day’ is old hat, you need ‘next hour’

So speed is of the essence, and if a retailer can’t deliver it quickly enough, we’ll take our business elsewhere. With this in mind, we can safely say those retailers desperately trying to offer 'next day' delivery are already out of date, as forward thinking retailers move towards ‘next hour’ services. Only the slickest and most flexible of operations can handle such a proposition, and that’s where companies like Amazon, who have a really clear idea of the operating model they need to underpin their business, will win every time against retailers who struggle to understand what they need to be and how to organise themselves to meet customers’ expectations.

Change is coming…

To summarise, customers want choice, competitive prices, convenience and fast delivery... at the lowest price! That means, for now at least, the cost of convenience falls to the retailers. In a traditionally low margin industry, this continues to put pressure on the bottom line and retailers need to constantly innovate their operations to stay competitive. Companies like Amazon are one step closer to running their own end-to-end supply chain involving their own vehicles, aeroplanes and infrastructure; for most this just isn’t realistic. For retailers to win in the market, building capabilities in channel integration and strategic order management is important. The agility to implement new delivery and collection channels rapidly will no longer be a ‘nice to have’, but a necessity. In the case of many traditional retailers this requires a significant re-think of the operating model, and efficiencies must be found elsewhere to invest in the right capabilities for the future. One thing is for certain, change is coming.

About the author

Keira Alonso Garcia
Keira Alonso Garcia
Keira is a Consultant within the Capgemini Consulting Operational Excellence practice, specialising in Retail Operations. She has delivered across a range of programmes including digital operating model transformations, store transformations, and supply chain optimisation projects. Alongside her consulting experience, Keira has over 5 years experience with a leading UK General Merchandise and Foods retailer.

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