Recently, Robin Terrell, Tesco’s Group Multi-channel Director said, “Customers bounce between channels in any direction they choose…” At the same presentation to investors at the beginning of 2014, Tesco talked about the importance of the new omni-channel world to them.
Key points included:
- Big box sales are falling as their raison d’etre of large range and more choice is now delivered better on-line.
- Conversely, convenience store sales are rising as people undertake more top-up shops and because changing demographics is leading to less need for the full-shop
- At Tesco, those who both shop in-store and buy groceries online spend 2.04 times as much as those who only shop in-store; and those who also shop on-line for general merchandise spend 2.98 times as much
- On-line grocery is growing by 10%, on-line general merchandise by 25% and on-line clothing by 70%.
The % increases in themselves are not indicative of the market per se although the fact that Tesco, the longest and largest player in the grocery sector, is seeing sales grow by double digits (and they’re profitable sales) demonstrates why big box sales are in long-term decline: simply that on-line grocery shopping is increasingly becoming a norm among those shoppers who aren’t looking for the cheapest price through the discounters (though worth remembering still a lot of shoppers in the UK and elsewhere shop in discounters.)
This same phenomena is being seen in the US where it was recently reported that Wal-Mart is seeing its sales decline in the traditional big box format while customers are ramping up expenditure on-line and on basics in discounters and pharmacy chains.
Tesco group multichannel director Robin Terrell said, “What Christmas (2013) 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.”
Tesco’s plans for the future include:
- One hour delivery slots for every product, seven days a week, whether sold by itself or by third-party sellers through its platform. In 2014, it aims to offer market-leading delivery pricing
- More click and collect locations will be added to the 232 locations for online grocery that they have at the moment
“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.”
What more could we expect from the likes of Tesco to become optimized brick and click operations.
1. No retailer has got it right yet – as most would admit – and they all still have a long way to go to become a proper click and brick operation. As they move along this journey, retailers are telling us that in terms of their continued development of IT their priorities are:
* Improve efficiency through the automation of processes and the simplification of operations across channels
* Through the use of smarter data, attract and retain new customers by providing more relevant and personalised interactions wherever the shop is being undertaken. Evidence suggests that with increasing knowledge and power, customers are becoming more promiscuous in their choice of where to shop.
* The continued reduction of enterprise costs; it is true to say that at this stage increasing digital sales has not led to improved margins.
- Most retailers are dealing with legacy IT systems. Inevitably they create redundant data and inaccurate customer information that increase costs through system maintenance, downtime, and operational inefficiencies. These systems are more often than not operating in silos that hinder the retailers’ ability to respond to an ever-increasing dynamic market place.
2. Will retailers be investing heavily in social media commerce? Probably not. Tesco for one have experimented with direct sales without success and many other large retailers have discovered the same. Direct sales through social media thus far has proven to be better for niche products.
However Tesco are experimenting with Co-buying currently; a platform where consumers through clubbing together can get better deals. They’re encouraged to share their interest across social media in order to encourage more shoppers to the group. http://www.tesco.com/wine/zone/default.aspx?name=co-buys
3. Expect the big digital retailers to follow what Amazon are doing and fully integrate Facebook into their platform rather than the other way around. Announced at the end of 2013, if Amazon users connect their Facebook account to their Amazon account they will see personal recommendations and product suggestions based on their Facebook likes and their friends’ behaviours.
4. The smarter use of in-store digital screens is growing rapidly. Again Tesco has introduced screens so that in-store customers who find an item out of stock can order it on the screen, pay by chip and pin and then select either home delivery or click and collect. The idea behind this is that the customer can place the order immediately and easily without needing to wait until they return back home or to go through a potentially slow download on their phones if they try to do this in-store.
5. Stores are also creating the endless aisle that mixes the virtual and the real – again allowing customers to select goods that might not be stocked and giving them the opportunity to have them delivered. This will decrease the level of walked sales
6. Greater personalization and elimination of irrelevance for shoppers. A big idea that has been a core Tesco strategy since the late 1990s.
To compete effectively businesses need to understand their customers in all areas of their business strategy and the best businesses are doing this through sophisticated use of analytics. They ask questions such as:
- Are we meeting our customers’ need?
- How do our customers needs change?
- How can our business be more relevant to its customers?
- Do we reward our most profitable customers accordingly?
- Does our management information provide fast feedback of customer dynamics?
- How can better customer insight enable better implementation of tactical activity?
- How do we better cross sell?
- What are the optimal price & promotions strategies and execution?
- How can we be better at prospecting?
- Should we focus on loyalty or trial?
7. Being more choiceful in the use of technology and not falling for gimmicks that only confuse the customer – particularly if it isn’t clear what benefit the technology can bring. Nonetheless creating better predictability and connections of services through the use of technology joined-up by the internet-of-things is definitely going to happen. One goal is to create the environment where a customer can make it a ‘without thinking’ experience when remembering to reorder goods.
8. There’s a lot of excitement about mobile payments but we should remember that they are currently only being used by 1% of customers globally so a mobile payment-only focus is not going to be helpful for the other 99% (and it is unlikely that there is going to be rapid conversion). So enhanced non-mobile payment features need to be developed in tandem. Nonetheless we’d expect that investment in refreshed POS technologies will be a significant strategy over the next five years but a single technology that will embrace digital as well as store touch points
9. Simply use mobile better. For example less than 30% of retailers in both Europe and the US currently have the capability of allowing their customers to interact with their brand in-store through their mobile phone.
10. Improve the use of screen technology by sales staff/associates to undertake key store functions: inventory search, store fulfillment and guided selling functionality; the latter using increasingly sophisticated customer intelligence.
11. Ordering through the TV has been a slow burner but now doing this either directly or indirectly through a second screen is beginning to gain traction. Expect to see some real innovation here.
12. Eventually there being full connection between work, home and the retailer: the buying process will be quicker, smarter and, something rarely talked about. It will be more visual. Logistically big changes will have to occur as the time that will people shop will be changing and as will their delivery expectations.
All retailers will be attempting to foreshorten the time between inspiration, buying and drop-off/pick-up time.
In certain sectors, the importance of the drop-off and the moment of opening the item will become a real differentiator of the retailer-shopper experience. The driver who drops off goods is an ambassador for the retailer; the packaging and the contained messaging creates a connection with the retailer. These are not things that can be dismissed as secondary or wholly unimportant.
There is an interesting question as to whether current pure-play retailers in the digital space will have to move into bricks in some form in order to enhance their relationship with people. The question is whether customers eventually will also continue to seek some degree of personal interaction to cement their relationships.
Retailers will definitely need to take greater control of the delivery chain – if the third party courier company is the weakest link as is often still the case this will impact on the retailer.
13. Bricks and mortar retailers will have to ensure that they get the basics delivered perfectly in-store. Indeed annoyances while shopping will have a greater impact as shoppers remember how painless the experience is on-line. There is still some way to go here – we could get shopping trolley wheels that work for example. The important point being is that it’s easy to get carried away with the new stuff and not pay attention to pinch-points that will undermine the seamless experience elsewhere.
14. Optimisation of the shopper journey from home to store to on-line will be key. This is still in its infancy; it might also require collaboration between retailers, retail associations, and mall-owners to name but three. Very simply, it is to use technologies, data and personalization to ensure that a shopper’s time is not wasted – unless of course they wish to spend downtime on the experience.
15. There is a need to make the process of sharing easier. Bricks and mortar retailers desperately want their customers to share their goods, promotions and experience socially – but how many shoppers are going to waste time in-store doing this via their mobile even if the store does have wi-fi installed?
Two points in conclusion. The first is that retailers have to take the customer on a journey and not assume that all of them want to go on the same journey or at the same speed. Neither should they assume that all customers want to use technology. As one retailer said recently, don’t assume that because the train has left the station that it will arrive at its destination with passengers on board.
Secondly all retailers must drive and believe in continuous and agile innovation: the demands that consumer are making in truth outstrip the ability of retailers to keep up. Consequently innovation isn’t a one-off event that can happen from time-to time but instead it must become a standard process within the business. Retailers need to create an environment where ideas can be experimented with quickly and that fast iteration becomes the norm.