As more consumers opt to buy online rather than in-store the traditional tenets of good retailing have fallen by the wayside: returns are rising, stock control is chaotic and margins are under pressure. Where will it all end?
“Successful retailing” – runs the old saw – “is all about selling goods that don’t come back to customers who do”. With returns rates for online purchases generally quoted as averaging 30 per cent goods “coming back” are now the rule rather than the exception and clearly no longer a criterion for success.
Add to burgeoning returns the mixed reports from retailers in recent months, and the impact of online sales is ever more apparent. While some high street names, have preferred to blame poor performance in recent months on Brexit, the falling pound or inflation, pure plays have been notching up impressive sales growth. Fashion site Boohoo recorded a 55 per cent increase in sales in the run-up to Christmas, and, as the company’s chief executive Carol Kane said at the time: “There hasn’t been an increase in shoppers’ wallets, so we must be taking share from somewhere.”
While the ONS calculates that total retail sales in 2016 increased by 4.7 per cent, IMRG-Capgemini puts the year-on-year online increase at 16 per cent. Looking forward, the Centre for Retail Research is forecasting an over-all increase of just 1.6 per cent in total retail sales in 2017, while IMRG-Capgemini suggests a 14 per cent growth in online trade – two numbers which, taken together, suggest that real world sales are set to decline.
Clearly the shift to online will continue, and that doesn’t only threaten the existence of real-world stores, is also transforming supply chains. The “single stock pool” concept, replacing separate allocations for stores and online, may be well-established – although not all multi-channel retailers will have moved to such a model. Similarly, how many can manage real-time inventory across the estate to fulfil from store? Delivering orders, picked overnight, to individual stores for customer collection the next day, has been a significant growth area for the logistics sector in recent years, and will no doubt continue to be so as click-and-collect grows and stores lack on-site resources to process online orders.
The need to manage large numbers of returns has also spawned a new service sector: a BBC report last year recorded one distribution centre receiving 80,000 returns on the day its camera crew visited. According to Tony Mannix, chief executive of Clipper, interviewed in the programme, 5 per cent of returns end up “being binned” as they are too damaged to refresh for resale. Those goods not only represent lost value for the retailer, but the additional expense of a “free return”. Under the Consumer Contracts Regulations orders for goods bought online can be cancelled up to 14 calendar days from receipt of the items and must be returned within a further 14 days. Return of faulty or misdescribed goods comes under the Consumer Rights Act and gives shoppers 30 days to return them. In either case it plays havoc with stock control – especially for rapid turnover lines such as fast fashion.
While lines may be out of stock in high street branches several hundred of the same item could be in transit from customer to returns depot and from depot back to retail store; and while some returns may go direct to a central depot, others could be returned to various high street branches already well-stocked with that item. Inevitably merchandise ends up in the wrong place, product availability records are skewed, and as goods travel from A to B and back again the total cost to serve rises. Small wonder that so many retailers report increased sales but falling profits.
As Ray Kelvin, founder and chief executive of retail chain Ted Baker said earlier this year: “Shops are being eaten alive by their own online businesses”. With rents and business rates set to rise and real-world footfall falling, branch rationalisation is inevitable. Last year Marks & Spencer announced the closure of 30 UK stores; most were in towns where the chain has more than one outlet, but that also applies to a great many other high street names who might just adopt a similar approach. Shops, per se, are unlikely to “vanish” from less popular high streets, but leading brands certainly could.
So if stores become less convenient, or fewer and further between will click-and-collect become a shared activity, just as Asda acts as a pick-up point for a dozen or so other retailers through its ToYou service? Shall we see more parcel lockers at railway stations, shopping centres, or car parks? Or will delivery to the workplace gain ground?
Whatever happens it will mean plenty more delivery trucks ferrying goods around; new ways to manage stock control as the returns flood back; new techniques to reduce picking costs – as with new Ocado’s robotic trial; and ever greater margin erosion. Online is not so much the elephant in the boardroom, more of a crocodile.
This article first appeared in the March 2017 edition of Logistics & Supply Chain.