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IRUK Top500 Strategy and Innovation Report: 2018

IRUK Top500 Strategy and Innovation Report: 2018

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Updating Argos through test, learn and scale (IRM52)

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Emma Herrod speaks to Bertrand Bodson, Chief Digital Officer, Home Retail Group, about transformation, speed and the Argos customer.

Argos’s transformation plan is on a roll as far as the customer is concerned: new, upmarket brands have been introduced to the catalogue, more and more stores are being refitted, with iPads taking the place of paper catalogues, and small outlets are springing up in locations from London Underground stations to Sainsbury’s supermarkets.

What the customer sees though is only the “swan neck” of the big changes that have taken place in the back end of the company; changes to its operations with hub and spoke distribution, cross-discipline working and the launch of its Digital Hub above the store in Victoria, London.

Everything Argos does revolves around the four pillars of transformation, explains Bertrand Bodson, Chief Digital Officer, Home Retail Group. These were outlined in the company’s five-year Transformation Plan, launched in October 2012, which saw Argos reinventing itself as a digital retail leader. The four elements that will transform it from a catalogue- to a digital-led business are:

1) Reposition channels for a digital future

2) Provide more product choice, available to customers faster

3) Develop a customer offer that has universal appeal

4) Operate a lean and flexible cost base

At close to half way through this plan there are glimpses of what the future may hold as the company works on leveraging the existing store network and replenishment routes, introducing market-leading fulfilment options to complement the immediacy of in-store collection, and providing high levels of availability to its customers.

As part of repositioning its channels for a digital future, Argos [IRDX RARG] is innovating with its store experience, introducing fast-track collection and web-based browsers to shift the paper catalogues into a supporting role. No longer restricted by print runs or publishing cycles, ranges have also been extended – 40 new high-end brands have been introduced recently, including Mamas & Papas and Ted Baker Audio – as part of its plan to offer universal customer appeal. This aspect of the transformation also includes ensuring competitive pricing and value, strengthening its exclusive brand offer through fewer cross-category own brands, and enhancing product quality and design to meet the needs of new customer segments.

The Digital Hub – which looks at the front end of how the company converts the cross-channel experience – is guided by 10 principles. These have to be considered for all projects. Bodson won’t share all 10 but reveals a couple: speed and mobile.

“If the customer isn’t on a mission to speedily order and collect their purchase or to have it delivered, how do we help them find the right product and ease their journey?” asks Bodson, showing me around the Digital Hub, the 3D printer they have been testing and the wall of ideas which allows the teams to think about what Argos could be like digitally if the slate were wiped clean. Ideas on it at the moment include ways to localise the experience and Uber-style tracking to see the location of delivery vehicles.

Argos is not scared of testing and trialling ideas; its mobile apps are a good example. At Christmas, it launched a wishlist app for children while its Tinder-esq gift finder enabled browsers to swipe products to show whether or not they liked them. It also enabled the company to collect lots of information about customers, explains Bodson, as well as “tens of millions of product opinions”.

The Digital Hub has sub-teams of 8 people with a range of specialist skills such as UX, QA, human interaction and SEO, who can look at certain customer-facing issues as agile projects. Mobile, which is a “big part of Argos’s strategy”, has priority place. Some 28% of the entire business came through mobile channels during the third quarter of 2014. Online overall accounts for 49% of the business with sales via Check & Reserve representing 80% of internet transactions during the period. Argos expects 75% of its sales to be digitally led by 2018.

The Digital Hub team – which is spread across three offices – has grown by 60 people in the past year and will see a further 120 recruited over the next couple of months.

DIGITAL STORES

The Digital Hub has had a lot to do with the digital stores, a concept which Argos tested in six outlets in early 2014, alongside Fast Track collection for online orders. The concept has now been rolled out to 55 stores, including small format outlets within Sainsbury’s supermarkets.

The digital stores are more open than the old-style format. The ordering and payment counter has been replaced by individual pods in front of digital displays so the messaging and function of each can be altered, allowing payment and collection points to be more flexible and used for merchandising.

The paper catalogues, order slips and pens have been replaced with iPads, giving customers an experience more akin to online browsing. The iPads also give customers access to the full product range and customer reviews, with information such as stock levels localised to that particular store and those nearby.

Bodson explains that store colleagues are also equipped with tablets and are on hand to help customers on the shop floor rather than all being positioned behind pods and in the warehouse.

Bodson, who previously worked at Amazon, points out that the key differences between Argos and his former employer are the stores and the customer-facing staff. “How can we bring the humanity to it,” he asks? Through colleagues in store – “my digital army of 30,000 people” as he calls them.

This digital army is showcasing the tablets in store to customers who want help. “Customers have been trained over 40 years to use the paper catalogues,” Bodson says, and many of them may not have ever been online before. This is one of the reasons why the company is working with Martha Lane Fox’s digital inclusion campaign Go ON UK and offering customers training sessions on tablets after stores have closed.

Another side of humanising technology is the use of Live Chat 24-7, through which consumers using the Argos app can be offered help and linked to a customer services agent or product expert. This is currently being expanded across categories.

The Fast Track collection aisle in the digital stores is a manifestation of one of Argos’s principles: speed. “What can we do for the customers in 60 seconds?” asks Bodson. The collection points are close to the entrance, the customer shows their reservation number, which links through to a voice activated headset in the warehouse behind for a person to pick the item and bring it to the customer. Customer picks take priority over any other job they are doing at the time.

Much of what Argos does wouldn’t be possible without a single view of stock. It’s “one of our strengths,” says Bodson, explaining how the company achieves 99.99% accuracy on stock with the stock file updated as soon as something is picked. “Most retailers are closer to 70%,” he says.

iBeacons are being tested to make this process even faster. A beacon will identify a customer 50m from the store and send the trigger for their purchase to be picked so it’s ready when they arrive. This works with customers who have already paid for their item and those who are paying in store.

Argos is also moving closer to its customers physically. Currently, 95% of people are within 10 miles of one of its stores. Ten new, small-format digital stores are being opened in Sainsbury’s supermarkets and twenty have been opened in stores belonging to sister company Homebase. London’s Cheapside now has an outlet and the first Argos Collect store opened at Cannon Street Underground station in November 2014. The latter only covers 650sq ft, 170 sq ft of which is shop floor. It offers up to 20,000 products for fast, same or next-day collection.

The digital stores within existing Sainsbury’s supermarkets are larger – ranging in size from around 1,000 to 5,000 sq ft. Their bigger stock capacity means they are able to instantly fulfil customer orders from more than 20,000 non-grocery products. Customers can buy items instantly in store via tablets, or reserve online for collection within hours, later that same day or the following day. An extended range of around 40,000 products can also be ordered in store for home delivery. All of these outlets will be open by the summer.

As with many of Argos’ innovations over the past year, the Sainsbury’s stores are all trials. The two retailers will decide in the summer whether or not to expand the partnership.

Trialling and scaling is what Argos has become very proficient at. In the past, new stores were 15,000sq ft to carry the level of stock required in each warehouse, explains Bodson, but now stock can reach each store in one of a number of drops each day. This has been enabled through the company’s hub and spoke distribution system, something which enables the operation of the smaller format stores such as those on London Underground premises. In this model, one hub store operates as a mini DC for five spoke stores. The spoke stores stock fast-moving items with the slower moving skus kept at the hub store and driven to the other outlets as a lorry moves on a rotation around them two or three times a day.

Speaking at the time of the Cannon Street store opening in November 2014, Home Retail Group Chief Executive John Walden commented: “Because of our innovative new hub and spoke distribution network, we can now provide over 20,000 products to any of our locations within hours, regardless of the stocking capacity of each individual store. The combination of hub and spoke with our multiple digital store formats will provide Argos with cost-effective options to potentially serve many more customers through many new locations in the future.”

HUB AND SPOKE

The hub and spoke system was run as a trial initially and now, a year later, 150 hubs are up and running across the country. “Now we can open tiny stores where the customers are,” says Bodson. He acknowledges that there is a risk that the item the customer wants may not be held at the store they decided to visit, but it can be moved there and made available within a few hours. This allows Argos to offer services such as order by 1pm and pick up after 4pm or order by midnight for next-day delivery.

The retailer is currently piloting the next step of its hub and spoke system, using the regional hubs as fulfilment centres for home delivery of customer orders faster than delivery from a regional DC.

In one trial, large items requiring two-man delivery – currently white goods – are being offered for next-day delivery.

In another trial, customers are being offered ‘super fast’ delivery of small items. While acknowledging that the company already partners with Shutl to offer fast delivery from store, Bodson says that “a lot of things aren’t mutually exclusive”. They can offer different touchpoint and experience – and not just at the checkout as is the case with the Shutl service. “We could have integrated the Shutl experience better into the customer journey,” he admits.

With 55 digital stores now open, “you can see the direction of travel,” Bodson adds.

Argos has been busy making the most of its assets in terms of people, stores, products and operations to provide a richer, more inspirational journey for customers, one which is local to consumers while providing growth for the business. Key has been keeping innovation relevant to the customer and to the business and tied in to technology teams and partners – both start-ups and large partners, explains Bodson.

While the digital teams have worked on creating a richer, seamless experience for customers, through which they can check stock, reserve it and talk to product experts, the hub and spoke model has opened up opportunities for new format stores which are no longer dependant on size or stocking capacity. The model – which has the ability to deliver customer orders from around 20,000 skus within hours – is proving to be a cost-effective way to expand Argos’s reach, and by partnering with companies such as Sainsbury’s, London Underground and eBay (it has been a collection point for eBay orders since 2013) it is showing a direction of travel and potential future in which it owns the final mile.

With three years left in which to deliver on its transformation plan, Argos is showing that thinking digital and focusing on agile operations can pay dividends.
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