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Tesco explains how it will put customers first as it looks to win in the multichannel era

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Tesco today explained how it planned to put customers first in a “seamlessly connected” omnichannel world in which shoppers are spending more online, and less in stores.

Tesco unveiled some of its Christmas figures at a seminar for investors and analysts today to show how the group’s different UK channels and businesses had fared. Its presentation showed that underlying an overall 2.3% drop in UK like-for-like sales was a 3.1% fall in sales at large format stores. Express sales grew by 1%, online grocery by 10% and online general merchandise by 25%. Online clothing sales grew even more quickly, at 70%, and digital entertainment from Tesco’s Blinkbox service soared, with 245% growth.

This added up, said the supermarket, which is also the UK’s largest retailer, to distinct consumer trends in which online sales are growing strongly as ecommerce has gone mainstream, convenience is growing as customers buy more locally and more often, and large out-of-town stores are under pressure as a result.

Tesco is hit hard as more than half (56%) its space is in larger stores. Its plan for action now means boosting the online grocery business, which made a trading profit of £127m last year on sales of £2.5bn, while developing strong own-brands and store formats as it moves towards “the most compelling offer for our customers in the multichannel era.”

Tesco group multichannel director Robin Terrell said, “What Christmas told us was that our multichannel focus was the right one but if anything we needed to go faster.” Most important of all, he said, was the need to meet customer expectations of seamless service. “Customers bounce between channels in any direction they choose, and they expect a seamless service. Because their expectations have increased, they are very unforgiving. It’s a very different world.”

There’s a commercial prize, however, for those who get it right, he said. At Tesco, those who shop in-store and buy groceries online spend 2.04 times as much as those who only shop in the store. Those who add general merchandise online shopping to those two, spend 2.98 times as much. “People often worry about cannibalisation,” said Terrell, “but that’s fundamentally missing the point. It’s about identifying your most valuable customers and satisfying them however, wherever and whenever they want to shop with us.”

As the company moves towards that, longer-term plans include introducing one hour delivery slots for every product, seven days a week, whether sold by itself or by third-party sellers through its platform. The service will cover 100% of the UK, while more click and collect locations will also be added. In 2014, it aims to offer market-leading delivery pricing, free click and collect, which already accounts for 6% of online grocery sales and 70% of general merchandise sales. “Fulfillment and delivery are critical to success,” said Terrell. On the digital entertainment side, it will launch blinkbox books, complementing its video and music services.

“We’ve always been focused on customers and gaining their loyalty,” said chief executive Philip Clarke, “and this is going to be even more important in the new era of retailing. Businesses that don’t change with the times don’t succeed and we didn’t change enough.”

Key among its strategic priorities, it said, would be “continued leadership in multichannel and online” and a “seamless multichannel offer”. It also plans to invest £200m in keeping prices low, while continuing to develop multichannel measures such as click and collect: it now has more than 1,750 dedicated desks for online general merchandise, and 232 locations for online grocery click and collect.

The supermarket, which is the UK’s largest retailer, said that it would reduce capital expenditure to a maximum of £2.5bn a year while also investing to make sure that “we emerge as winners in the new era”.

Our view: Interesting insights here from an acknowledge market leader in multichannel. Not only does the supermarket spell out how much of a profit it makes from online grocery sales, but it also shares insights into how much more multichannel shoppers spend. Most importantly, perhaps, of all, it tells us how even a retailer that’a already on the front foot when it comes to multichannel, needs to up the ante in order to keep pace with consumer expectations. The same is probably true for many other multichannel retailers, who can learn lessons from the Tesco experience.

Tesco’s Mark Cody will be speaking in the Mobile and Mobility conference at IRX 2014. He’ll be interviewed in the conference on New innovations in mobile marketing at 11.10am on Thursday March 27.

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