Mark Collin, Head of European Retail, ThoughtWorks explains why delivery – rather than product – is becoming the differentiator within retail.
Retail has already been transfigured as an industry. Since the early 2000s with the growth in online and ecommerce, to the current state-of-play with both online and offline now merging towards a seamless omnichannel experience, it’s a new age of consumerism.
So what’s next? Now, I’m no Doug Stephens, aka the Retail Prophet, but I have been noticing a trend worth sharing through my work with our clients and the global thought leaders in our retail practice. The new phenomenon that I predict will further shape this disrupted sector is Delivery 2.0, whereby delivery becomes retail. Where product is not the differentiator retailers have been searching for, but rather the customer experience is the real value they can add.
Some have chosen ‘fidelity’ and are doing incredibly well. Burberry Group, for example, recently posted an increase of sales in the region of 17% due to its digital activities, where it has made its stores a mind-blowing immersive digital extravaganza. Many have been pushing in the direction of ‘convenience’ whether that is a faster, discounted experience in-store or a much more convenient collection or delivery service.
We also saw UK-based Appliances Online switch from a B2B model (supporting some of the biggest online retailers with their electrical appliances offering) to a B2C model. I then watched with particular incredulity as AO.com became one of the biggest flotations in UK Retail.
John Roberts, CEO of AO.com, said, “I need to be able to explain to my Grandmother what I do and she needs to be able to order a washing machine for next-day delivery and installation without even noticing the technology part.”
£1bn capitalisation and a stock market flotation later, AO.com has become a dominant force in a commodity-driven sector with beautiful simplicity and attention to detail on convenience.
Avoiding the Traps
When every retailer is able to offer same day, even next hour delivery, collection from a locker at a commuter train station (e.g. Amazon’s deal with Transport for London) or specified next day delivery slots in 15-minute-periods what would differentiate one from another?
Whilst the various options open to customers born out of Delivery 2.0 are undoubtedly driving convenience, it is important not to confuse it with driving real added value for them. Whilst the top line performance (revenue) might be improving, this can deflect attention from the bottom line, where the customer experience could be irrevocably suffering.
There have been several highly respected retail stalwarts that have fallen into this very trap. Longstanding customers of one particular UK high street behemoth, some of whom have shopped at the store for 30 years, have been bombarding message boards to describe their experience of service levels in recent months with a mixture of shock and disappointment. There is talk of a worrying trend of washing machines dumped in gardens, non-existent or cancelled deliveries and repeatedly failed orders. I will not name and shame the retailer but in these increasingly fickle times where brand loyalty is becoming a rare commodity this issue is gaining extra resonance.
ThoughtWorks is working with SF Express, the largest logistics company in China, who is keen to combat this. The focus has been on improving the customer experience through digital (platform and touchpoints) so that a customer can self-serve online, or phone a call centre and be served face-to-face in a totally seamless way. SF Express is using this approach to change the game and reverse its business model from delivery service to retailer. It is acquiring physical presence in the form of ‘Post Offices’ which are both a delivery hub and a local convenience store.
However, it is not operating on a basis where these Heike stores have to be stocked full of goods. Instead it has a core range of products supplemented by an endless aisle concept facilitated by tablets and by pictures and QR codes on the walls. SF Express’ Heike stores also work with retail partners giving customers access to their websites from the stores. They also offer services such as a changing room for customers to try on clothing that they’ve had delivered to the store, dry cleaning, flight booking and charging and payment for utilities. The company planned to open 4,000 Heike stores across China by the end of 2014.
SF Express now has the ability to sell thousands of products through digital kiosks, and customers can scan an image of a product in the store and then have it delivered next day to the store or to their home. Now its delivery network is so sophisticated and comprehensive all it needs to add are ‘convenience services’ (or products) to its assortment.
Adapt or Die
Adaptability and versatility are key. Retailers need to be concentrating on designing and building more responsive, faster retailing businesses than trying to predict the future, which seems to increase in uncertainty year-on-year. Analytics investment is increasing but the nature of predictive analytics is still unreliable. If the Met Office struggles to get a five day weather forecast correct, what chance does a retailer have of predicting whether we will have a soggy September or an Indian summer?
Most in our industry would agree that being customer focused is key. Yet, on the whole the industry is playing catch up, due to constant fire fighting, whilst pivoting hundreds of spreadsheets, and generally running around in a very labour intensive way to make their customers happy. Fundamentally, the systems and processes that most retailers are currently using are based on archaic retail approaches; and they are creaking.
Retail is an industry about to be transfigured all over again. We are in a state (and need) of continuous innovation in which retailers are employing a bolder ‘start over strategy’ to a more responsive model that properly supports 21st Century omnichannel retailing. Dragging business processes of old behind you is not a platform for a bright future that has the tills – virtual or otherwise – ringing for years to come.