Retailers had little reason to celebrate following the release of trading results over the Christmas period. But while overall sales figures looked dismal across the board, online revenues mitigated some of the damage, providing further proof that a strong multi-channel strategy will be the difference in staying ahead as consumer spending continues to tighten.
“The companies that are going bust are the ones that haven’t kept up with the latest multi-channel retailing, not offering things like returns to store or click-and-collect services,” said Christine Bardwell research manager at IDC Retail Insights EMEA. “Convenience will be a key driver for shopping online and if it is not offered then consumers will shop somewhere else,” she added.
One big consumer growth area has been a move to click-and-collect – where consumers order online and collect in-store. Sainsbury’s click-and-collect service now represents 25% of all online sales. National retailers need to ensure there are branches near to where e-commerce customers are, so they can develop their click-and-collect strategy, says Patrick O'Brien, analyst at Verdict.
But at the same time, retailers will be faced with the strategic decision of exactly where to shut stores and where a physical presence could compliment the online offering. In 2008, retailers made as many cuts as they could to the business and focused on the bottom line, by streamlining supply chains improving efficiencies. But there's not much more room to make significant savings here now, which is why they are now looking at store cuts, says Bardwell
“An awful lot of retailers are looking at the number of stores and where they are located. E-commerce will continue to grow and as such they will think how many shops are required and whether they are in the right places.”
For some brands, their flagship stores are likely to be their only physical stores in the future. Bardwell says retailers will have to make them a more social environment, such as Topshop’s inclusion of a nail bar in its Oxford Street branch.
Getting multi-channel right
The big opportunities for retailers will be integrating e-commerce and mobile operations with those of the shop. “This gives high street retailers a benefit above pure play. If they can’t compete with online-only retailers in price they may get the edge on can on convenience and customer service,” says O’Brien.
Pricing transparency and parity between online and in-store will be key. “When people are using smartphones dual-pricing doesn’t work so well because they can clearly see if the shop is charging higher prices,” said O’Brien.
“Game has released dreadful results and they still operate dual prices. Their online sales increased but at a much lower level than the rest of that market. It should have invested a lot more in developing its online strategy. All retailers focused on content are facing a similar problem. So it was not alone there, but it could have mitigated some of the damage,” he said.
As online and in-store channels becomes more integrated, department stores will also need systems that provide better real-time information about where products are, to control stock and provide visibility online.
Mike Eaton, managing director of Retail Answers, said: “If you are directing a customer to a shop to collect their item, it had better be there. So how do you make sure it is and someone hasn’t strolled in and bought it? Information needs to flow as it happens, with websites checking central databases,” he said.
Big areas of investment are store systems, such as store allocation and warehouse management, and making sure all networks are joined up, he said. “Integration of cross-channel systems is important at the moment, but at the same time that is tough because many retailers don’t have a lot of money.”
Some retailers are using middleware to connect back-end systems for online and in-store, while others will use a fully-integrated system which synchronise shop sales with other channels, he said. Retailers need to put a technology investment plan in place now: “They need to decide where they want to be at the end of this year and the end of next year.”
Mobile transactions are yet to take off, still accounting for just a fraction of online sales. Consequently some retailers are put off by investing in mobile platforms, as the number of transactions made on this platform is still relatively minor. But these retailers fail to understand that smartphone users want access to mobile sites not just for transactions, but as part of the browsing and research, says O’Brien. A return on investment in mobile sites and apps should be considered in relation to the store’s cross-channel offering.
Other retailers, such as Tesco, are thinking ahead to long-term customer trends by investing in an augmented reality application. However, Bardwell believes augmented reality is still at the gimmick stage: “I can see how 2012 will be an interesting year for augmented reality, but I still think it’s a few years away yet,” she said.
Virtual to physical
But high street retailers aren’t the only ones considering the importance of a multi-channel offering. As high street retailers seek to scale back the number of stores, online-only retailers appear to be increasingly moving into the physical space. For example eBay trialled a pop-up shop in London over Christmas, consisting of a wall of QR codes for customers to scan with their smartphones. And in an even greater encroachment on traditional retailers’ space, Amazon is currently trialling lockers in London, where customers can purchase an item online and are then given the option of picking it up at a nearby locker by punching in a code.
Online-only fashion business Asos was in talks with one UK retailer about offering a collection service for its products, although that arrangement appeared to fall through, says O'Brien. “Looking at ways of making delivery more convenient – such as by partnering with non-competing retailers – could be a good move for online-only retailers,” he said.
However, for online-only retailers, issues around delivery could be a growing problem, says O’Brien: “Some employers have said that staff are no longer allowed personal deliveries, as it’s too time consuming and puts too much strain on postal delivery services. If that trend continues, online retailers will need to address delivery convenience issues."
One solution points to services such as Collect Plus, which newsagents can sign up to and which enables customers to receive and return products from the corner shop, rather than having to go all the way to the newsagents.
Delivery will be one of the areas of differentiation in 2012, with companies such as Shutl providing a service that pulls together information on all the couriers available to deliver their product, to find the one that can make a delivery in under 40 minutes. At the moment that service is just available in London, but will be rolled out across major cities in the UK, says Bardwell.
“That way, if someone is shopping on the high street and they see a product they like in-store, they can order it on their mobile phone and have it delivered by the time they get back, so they don’t have to carry a lot of shopping,” she said.
As cash-strapped consumers continue to expect more – from online and high street retailers, in price and convenience – the fight for customer market share will rage on in 2012. And in an uncertain economic climate, the only aspect that remains inevitable this year is that online sales will grow, putting online and the right technology investments at the centre of all successful retail strategies.