The big success of an otherwise disappointing business year has been the continued growth of online retail. For many, providing a service has simply been a matter of bolting on the facilities. But times are changing and multi-channel is moving to the core of retail supply chain thinking.
The economics wonks might still be arguing over whether the recession is U-shaped or W-shaped, but it is very obvious that one area where growth is strong is online retail. New figures from the IMRG Capgemini e-Retail Sales Index show that UK shoppers spent £4.2 billion online in July 2009. That is a rise of 15.7 per cent on June and 16.8 per cent on July 2008.
Clothing, footwear and accessories has continued to see growth of 18 per cent month on month and 17 per cent year on year. The electricals sector has also seen continued growth in online sales throughout 2009.
Tina Spooner of IMRG says: “Online retail continues to outperform the high street with e-retail growth in July exceeding the yearly growth seen in July 2008. It is evident that online merchants are becoming more sophisticated in their marketing efforts and e-mail communications to their customers, the result of which can be seen in higher conversion rates, particularly in the clothing sector.”
The trend is not lost on supply chain professionals. In fact, says Mark Hewitt, chief executive of e-fulfilment specialist iForce, the business has seen strong year on year growth – “much stronger than the IMRG numbers”.
“Those that invested early and have a good online offering are winning the day,” he says.
The response of retailers to the growth of multi-channel has been variable with some moving quickly to understand and embrace it while others have been slower. However, says Hewitt: “They are all heading in the right direction – the pace of change has been accelerated by the recession.”
Mark Mearns, general manager – e-fulfilment at Unipart, believes that the experience of the recession will lead to a sea change in the way the retailers perceive multi-channel. “The traditional bricks and mortar retailers are waking up to the fact that online is a cheaper way for them to sell their goods.”
Unipart Logistics has become a major player in B2B and B2C markets serving a range of customers including ASOS, Play.com and Vodafone.
As recovery takes hold and retailers have the funds to invest, that investment will increasingly go into warehouse and delivery infrastructure for internet shopping rather than into the development of high street stores, says Mearns, highlighting the cost of high street stores as well as the parking problems. Young people in particular want the speed and convenience of buying online.
The trend towards online shopping is spelled out in the latest figures from the Office for National Statistics, which show that 63 per cent of UK households have a broadband connection and 64 per cent of recent web users have purchased goods or services online.
And the web is no longer just the preserve of the young – the ONS figures show that internet use has increased the most among those aged over 65, up 15 per cent in the past 12 months. The latest IMRG-Hitwise Hot Shops survey put Amazon UK firmly on top followed by Argos and Play.com. “Consumers welcome high street brands’ continuing response to the normalisation of internet in the retail mix, as the Hot Shops List shows,” says IMRG chief executive James Roper.
Mark Hewitt of iForce is clear that the critical factor in developing a successful online strategy is, not surprisingly, the accessibility and usability of the web site. He points out that click-through rates are typically five per cent or less. So it is not just about attracting customers to a web site, it is also vital to make it easy to use so that customers do not drop out before they have completed the purchase.
However, a study by web site developer dotCommerce, “Hitting the Checkout”, warned that most retailers failed to exploit the full potential of the web sites. The study assessed 20 of the leading UK-based retailers and concluded that while most had the basics of e-commerce covered, the majority were failing to embrace the rise of Web 2.0 content, such as blogs, videos and user-generated content, or demonstrate integration with marketing tools, such as e-mail and social media links.
Marks & Spencer and John Lewis topped the eCommerce League Table, “demonstrating that they were going beyond the basics and delivering a rich experience to web site visitors, which was clearly integrated with e-mail, after sales and marketing initiatives”.
“We were generally surprised to find a lack of added-value features and content on these web sites,” says Simon Bird, technical director at dotCommerce. “With competition for every consumer pound at an all time high, it’s more important than ever for retailers to engage with visitors to their sites. Features such as video, editorial content and user-generated content can really add something extra to a web site and go a long way to increasing the amount of money a customer will spend.
Mearns points out that retailers are becoming more innovative in their offerings, including free delivery over a certain purchase threshold; variable delivery options, multiple delivery and collection streams; later cut-off points for ordering; and free return options.
“Some retailers are now finding that consumers are ordering a large basket to obtain free delivery and for retailers offering free returns, the consumer is sending the most expensive item back, using this loophole to obtain free delivery on a lower basket size. This purchase threshold is likely to decrease this Christmas as fierce competition for market share increases,” he says.
Retailers are also pushing their daily order cut-off points later and later towards the end of the working day while still enabling the same guaranteed delivery performance to the consumer.
Mearns points out that over the past few years the guaranteed next day delivery cut-off point has moved from around 2pm to around 6pm. He points out that a high proportion of daily internet shopping is undertaken during the lunchtime break, therefore pushing the cut-off time to 6pm does demonstrate capability but the afternoon does not necessarily yield the same revenue as the lunchtime trading hours.
“The next challenge is to push the cut-off time further to 8pm-9pm to pick up sales from the evening spike.”
Maintaining service quality would appear to be an obvious requirement. But Mearns points out that any problems can now be exposed and publicised more quickly than ever before.
“Over the past 12 months there has been an explosion in social media, online networking and blogging and retailers have quickly realised that they can use both positive and negative feedback to their advantage. Many retailers create their own interaction pages on the global social media sites to inform customers, gauge opinion and offer sneak preview and pre-launches to friends.
“From a fulfilment point of view it is important that the service to the customer is right, and right first time, to prevent any adverse reaction through online customer comment. It is possible to go home in the evening thinking everything is great and log on in the morning to find a nightmare is unfolding in front of you,” he says.
The ability to handle returns is another critical issue. Hewitt argues that retailers which are visionary and dynamic and offer the widest range of return options, are likely to have the advantage. Those that can offer returns to one of their high street stores have an advantage over the pure-play online retailers.
Mearns points out that retailers are now starting to understand that the returns experience is as important as the purchasing and fulfilment experience. “An exceptional returns experience is more likely to lead to customer retention due to the knowledge that a mispurchased item can be easily rectified or replaced. This becomes even more important with increasing pressure on reducing the purchase to delivery time.”
These trends all have implications for the supply chain. Mearns highlights the fact that a higher level of returns, if not planned for, can increase the overall inventory levels resulting in higher costs. There is another danger with this – that a retailer can easily be left with excessive obsolescent stock when a new version of a product comes out.
Finding better ways of dealing with redundant stock is a challenge for 3PLs like Unipart. Rather than sell old stock to a jobber for 10p in the pound, Mearns points out that the asset value can be maximised by selling the goods through an auction site. Alternatively, goods could be moved out of the country and sold in Eastern Europe.
So far, e-fulfilment specialists have targeted the retail sector in the UK but there are plenty of other opportunities. iForce plans to start serving the continental market when it starts operations for a new client in November. The plan is to serve customers in France and Germany from the UK but Hewitt’s ambition is to be the European market leader so it is likely that at some point iForce will need to set up facilities on the continent.
iForce has developed its own bespoke IT systems which it believes can also be used for expanding the customer base beyond the retail market with services for the manufacturing sector as well. “We could manage the returns process for manufacturers as well as for retailers,” says Hewitt.
UK’s E-Tail Hot Shops
1 Amazon UK
6 Marks & Spencer
8 Thomson Holidays
Case Study: Award-winning online strategy for Tesco
The launch of Tesco Direct in the autumn of 2006 was a key event in the development of multichannel retailing – the UK’s largest supermarket chain moving decisively into the non-food sector with an online offering. The success of the operation won Tesco the 2007 European Supply Chain Excellence Award for Retail & Distribution.
Tesco brought in Neil Ashworth from Woolworths to mastermind the launch of the service as director of supply chain at Tesco Direct.
Through Tesco Direct, customers have the choice of ordering online, by phone or in selected stores. Delivery options include two-hour slots for home delivery on a Tesco.com van, next day delivery by courier or the option to pick up from stores. Customers can schedule their Tesco Direct order with their Tesco.com grocery shop and have everything delivered at the same time.
The operation is based at a 202,000 sq ft warehouse at Daventry and uses Manhattan’sWMS and Supply Chain Intelligence systems. It operates as a fulfilment centre rather than a distribution centre as it fulfils customer orders directly, rather than shipping goods out to Tesco stores.
For Tesco Direct, operations development manager, Stephen Powell said: ‘’From a truly standing start wherein even the development team wasn’t in place at launch, a completely new supply chain, providing a true multi-channel capability, has been created. Many elements have been implemented elsewhere in this sector but what makes this achievement unique is the scale, degree of business integration and complexity of the supply chain challenges – notably, the integration of three warehouse management solutions along with payment processing, order management, publishing, asset management and rich data systems.”
The European Supply Chain Excellence Award judges were particularly impressed by the way Tesco had ‘’used and leveraged everything they can from existing supply chains and the people they’ve grabbed, and motivated them to ask how they can really make this operation perform to world class status’’.
Case study: Multi-channel first for Sainsbury
In a first for the e-fulfilment sector, iForce is combining online fulfilment, online returns and retail returns processing for Sainsbury’s non-food goods under one roof. The service, which went live in July, is based at a 250,000 sq ft depot in Corby.
Shoppers can buy non-food ranges from sainsburys.co.uk – anything from toys to televisions, cups to computers. The site offers some 8,000 non-food products. iForce is providing its comprehensive fulfilment service for online orders (e-fulfilment) at Corby, managed by its in-house SMaRT software, while the company’s IRS (Intelligent Routeing System) provides carrier management.
The returns processing service consolidates returns of non-food products bought from retail stores and online. Using another in-house system, ReSCU, iForce manages the dispersal of the returns, routeing perfect-condition goods straight back to stock in Corby or the onward sale of raw returns and discounted lines via its Buy-
Force platform, which sells single and bulk pallets of all types of customer returns to B2B customers and the general public. iForce will also recycle obsolete items in accordance with the WEEE Directive to all but eliminate waste going to landfill.
David James, head of Sainsbury’s Logistics Non Food, says: “We are very pleased to be working in partnership with iForce on this new and exciting venture for Sainsbury’s. They have helped us develop an effective and efficient e-fulfilment operation that is fully customer focused and also accommodates our returns operation.”
Case Study: Asda be Clipper
Asda chose Clipper Logistics to handle fulfilment for its Asda/George Direct online business. It has developed a 24/7 service that will process and distribute orders from the Asda/George Direct sites and deliver goods to customers nationwide.
The operation is based at Clipper’s Ollerton site and includes several different conveyors for cartons and garments and the installation of a double-tier mezzanine level to house stock.
A new warehouse team was recruited and trained, and Clipper’s warehouse management system was integrated with Asda’s IT systems to support the customer order process. The project was delivered within 16 weeks.
Asda’s distribution director Ian Stansfield says: “Clipper has certainly delivered agility matched by ability.Working within very short and demanding timescales, the team has provided Asda with robust solutions for some of our supply chain challenges, and have delivered a high quality and efficient solution for our web-based businesses in both Asda and George. Clipper offers a true supply chain partnership approach and one that we greatly value.”