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Multichannel Now: Executive Summary

The second definitive report into the state of multichannel retailing in the UK.

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Everyone has got a view on where multichannel retailing is heading, and the market is flooded with data on what’s happening, but how do you determine what’s really valuable?

That’s the premise of Retail Week’s second Multichannel Now report. It’s been designed to provide an insight by allowing retailers to speak to us in confidence about what is taking place in their business, what their pain points are and how they intend to compete across the channels in which they operate.

The 20 board directors and other senior executives we interviewed in September and October this year have helped us make sense of many of the magazine’s headlines from the past year. And, more importantly, to help us predict trends and retailer actions we should expect throughout 2012.

Follow the customer

Customer-focus is beginning to turn into actions. Structural changes are taking place within retail businesses, and operational changes. Multichannel retailing is having a real impact on what retailers offer to their customers, and how they go about offering it.

“Trading conditions have heightened our multichannel strategy. Online trading conditions have, however, made us more aggressive”

Chief executive of a specialist retailer

Who would have thought at the beginning of 2011 that Argos would have launched a TV shopping channel, Kiddicare would reveal plans for 12 superstores, Mohamed Al-Fayed would have bought an etailer or Aurora would expand its 90-minute delivery service to cities all around the country?

The market is moving fast and the retailers that are doing best are the ones that are adapting to this speed.

The skills gap has intensified since last year, and retailers are reporting a desire for those with multichannel skills, as well as those with more specialist ecommerce skills.

Proof of the shortage can be seen from the merry-go-round of appointments seen during 2011. Within Retail Week’s Etail Power List – published in November 2011 – there were 11 retailers who had moved job in the past year. That one company alone, Marks & Spencer, has taken the most senior online executives from Tesco, Dixons and New Look inside of nine months, is indicative of this.

Property’s problems

In 2010, the first Multichannel Now report predicted that multichannel retail’s impact on property would begin to become an issue. The report uncovered an at the time unspoken feeling that many high street retailers had more property than they needed.

“Customers think of the business as one brand, whether using online or going into the stores. And senior management needs to think in the same way”

Director of a department store

Inside of 12 months this belief has come to the fore, and predictions are being made of substantial reductions in town centre property demand in the next decade. The debate about how many stores a multichannel retailer needs for national coverage while optimising profitability rages on.

Senior retailers have made estimates ranging from 50 to 150, far fewer than many operate at the moment.

The report discusses how far retailers will move forward with disposals in the near term, and retailers’ predictions for how this will polarise demand for retail space. At the same time, our prediction from last year that retailers would begin to redefine space is coming true. What’s been seen in the market so far is just the tip of the iceberg, and Retail Week expects that to be a strong emerging trend for the next couple of years.

Pricing for the real world

One of the new topics that has come through strongly is around pricing and promotions in the multichannel world. It’s an area where retailers have told us they are not doing what they think their customers want them to; many report they are operating price differentials between channels.

“People think an app is a license to print money. It is a nice business to have, but it is nothing like a store for us”

Chief executive of a fashion retailer

And there seems no end in sight for the downward price spiral, particularly for non-food online. Yet despite this, we hear from some retailers who think it is a substantial area of opportunity, particularly if they can leverage appropriate cross-channel services.

Despite retailers reporting the pain of squeezed margins, online promotional activity is a tactic many retailers have become addicted to in order to drive volume. We discuss whether this is a trend that is set to become a permanent feature of the market.

However, Groupon was one online promotional type that received almost universally negative responses from our interview subjects. They think they can run better promotions themselves while sacrificing less margin.

The same executives who had nothing but criticism for Groupon were on the whole positive about other developments such as mobile and Facebook, showing that innovation is being embraced when it appears to add something for customers and top lines.

Mobile futures

Mobile is moving at a tremendous pace. Retailers have followed their customers – developing mobile solutions because their customers were already interacting with them using smartphones.

Interestingly, it’s a trend that even those that don’t trade online say they can’t afford to ignore. They see customers coming to their stores and comparing their products and prices with the competition on their phones. It’s keeping them on their toes on pricing, particularly at the value end of the market.

“You just need enough stores to promote the brand… retailers with typically 300 to 400 stores need to slim down”

Chief executive of a multichannel fashion retailer

For those that are experienced online traders and have invested to tap into the growing mobile traffic there is a learning curve about what good looks like for mobile key performance indicators. In particular, they are learning that the different way that mobile is used means that it’s difficult to compare online and mobile conversion rates.

We have described mobile as the ‘connective tissue’ between all other channels, and examine what else consumers are using mobile for, other than completing transactions, that makes it a valuable channel for multichannel retailers.

Why collecting has clicked

In 2010 online-only and home shopping retailers realised the rise of click-and-collect services among their competitors with stores was a real competitive threat. In particular, the supermarkets launching click-and-collect points for their non-food offers provided convenience that was attractive to customers.

“We are developing a platform that is truly multichannel, as opposed to an online channel operating in stores, which is where we are now”

Director of a top 10 UK retailer

They’ve hit back, with Amazon’s trial of lockers and Shop Direct Group’s pushing of click-and-collect through Collect+ two examples of this. And N Brown has gone a step further, opening stores for its Simply Be brand in order to capture share of the substantial proportion of its market that’s tied up in store sales.

We reference retailers that are fulfilling between 10% and 85% of their online sales through click-and-collect. This and other premium delivery services are being used to attract customers on factors other than price, yet retailers tell us that they are not yet clear that all these delivery options are profitable.

Brits abroad

More than a quarter of the top 100 retailers in our benchmarking study are fulfilling orders from their UK websites to customers overseas. This is a trend that will no doubt continue, as more retailers capitalise on international ecommerce.

But the story is already moving on, as retailers are using what they learn from opening their UK site to the world to inform the development of targeted country sites for other markets.

“Our biggest success has been to understand the customer journey; how they interact with us online and how they interact with us in-store”

Director of a big-ticket item retailer

It’s the one area of multichannel retail where there are few worries about the cannibalisation of existing sales through other channels. Even retailers with franchisees overseas are trying to work out how they can capture international sales online without damaging their partnerships.

International websites and mobile are just two of the developments leading to channel proliferation. And retailers are creating new channels themselves with the development of marketplaces that are soaking up the sales of smaller merchants attracted by the brand strength and traffic of their larger competitors.

For the same reason Facebook is viewed in a generally positive light, although the social network could well find that it has a big job on its hands to convince many big retailers to use it as a transactional channel in the near future.

Competitive threats

Finally the report highlights how current performance is no guarantee of future success with the speed the market is moving at. There are two trends of note.

The first is that retailers prepared to take risks and innovate at pace are able to leapfrog competitors in terms of the proposition they offer to customers. During 2012, Morrisons is one retailer to watch. It’s already stated it wants to offer something different with its online launch. But it’s not the only one attempting this; big-ticket retail is another sector where innovation in the customer experience is on the cards.

The second is the tit-for-tat tactical multichannel developments being used by retailers to jostle for position in ultra-competitive markets. Mobile apps were an example of this last year, and enhanced delivery options and international delivery are all the rage.

Multichannel retailers are beginning to make changes within their businesses that move them on from offering multiple channels to delivering genuine cross-channel and channel-agnostic customer experiences.

As the sectors most affected by online and digital developments show – music, books and video games – continuous multichannel development is increasingly a key ingredient of survival. 

Topics in the report include

  • Reorganising around the customer
  • Staff engagement
  • The polarisation of property
  • How store space will be revamped
  • Multichannel pricing, promotions and marketing
  • Mobile and its impact on other channels
  • Delivery and click-and-collect opportunities
  • Stage two of overseas ecommerce
  • Channel proliferation and marketplaces
  • Leapfroggers and other competitive threats

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*Standard prices: Subscriber £599, Non-subscriber £799. Prices exclusive of VAT

 

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