The eNova Partnership: A pan–European multi channel advisory group

Welcome to eNova's Spring 2011 newsletter

As Mothercare announces fresh plans to reduce its store portfolio by a quarter to focus on direct and wholesale, we review the changing face of UK retail in the digital age. In a second article also published through Internet Retailing, we celebrate the tenth anniversary of the Click and Collect concept to review its adoption and benefits. Our usual multichannel quarterly market summary keeps you up to date with the latest in our scaringly fast-moving industry. Finally our guest writer Pete Doyle, an expert in social retail whose blog on the topic is No. 1 ranked on Google.com, gives us a taste of how to profitably use social media as a retailer. Do get in touch as always at sophie@enovapartnership.com or andy@enovapartnership.com.

Contents

The new retail order
Click and Collect 10 years on
Are you a social retailer?
Multichannel quarterly market summary

Stat of the quarter

"The Internet has become the most important driver for sales with Web content influencing 48% of offline sales" (Zmags April 2011)

The new retail order

No sooner had we applauded Halfords in our last newsletter for taking the step to announce a reduction in its shop space to focus on its multichannel growth than more reports came out on space reduction, the latest of which Mothercare’s announcement to close a quarter of its UK store estate to focus on direct and wholesale. The changing face of UK retail has been one of the most talked about topics in retail circles of late, and whether Mary Portas is the right ambassador for the job or not matters less than the fact that the Government seems worried enough to hire an expert to advise on the future of the UK high street.
 
To quote one of the recently published predictions from Verdict, "traders will shut shop to focus on selling online and through m-commerce, and this will change the way the high street works". Other market commentators estimate that 30% of UK retailers' physical presence is redundant. As Next's chief Executive Simon Wolfson puts it, "Retail in the UK is going to be different".
 
In our view the source of this "reshaping" is twofold: 1. The speed at which customers are embracing online and mobile as channels to purchase, which we dare not demonstrate any more and 2. The level of information and education customers hold on brand, products, prices and range when they enter the stores, making the shop space redundant for one of its major past functions, discovery.
 
As reported in Retail Week according to data from Experian "up to 90% of store purchases are now influenced by online research". Reading such statistics it is easy to forecast high street Armageddon. The key caveat however is that in spite of the unstoppable rise of the online channel, 90% of all sales are still done in-store. And this is not about to change. In the more mature US market, online retail penetration is 4.6% today versus 1% ten years ago, which in itself can’t justify a market reshaping of the magnitude of the one we are contemplating here. In the UK, online market penetration is set to hover slightly over the 10% mark over the next few years but we are not talking about a major shift.
 
So what with this dramatic reshaping of the retail landscape?
 
The dramatic shift is in market forces. Market forces used to reside with retailers themselves with high street presence and ability to advertise in scale major determinants of market power and success. The new market forces lie with customers: Information, Convenience, and Experience. Driven by the simultaneous rise of the online channel, and of a time-poor, demanding, experience-seeking and network-driven society, this new market order has shaken more than one rule. Niche retailers with little to no high street presence and small marketing budgets built market share at an unprecedented rate based on agility, e.g. ASOS, second only to Next in online clothing market share 10 years after its debut.
 
Who will retail winners and losers be in this new market order?
 
The short answer is – winners will be those who can best cater for the information/convenience/experience customer.
 
The long answer is :– Losers will belong to two categories:

1. Traditional retailers who are part of an industry where the online channel wins hands down on the information/convenience/experience conundrum. For example, electricals, where customers spend hours researching price and product specs information online, where home delivery is often more convenient due to item size or need for installation services, and where few are managing to make the store experience so special as to compensate for the shortcomings of the physical channel on the first two dimensions.

2. Bricks and mortar retailers who have failed to understand the online opportunity and are being cannibalised not only by online retail, but by other bricks and mortar retailers with a multichannel offering.
 
The winners will also belong to two categories:

1. Pure play online retailers who can dominate their space based on either scale e.g. Amazon, or agility to navigate this new “customer power order”, mainly niche retailers like ASOS, MandM Direct, Net a Porter or Wiggle.

2. Bricks and mortar retailers with both physical and online presences and an integrated, customer-centric, multichannel proposition – combining the best of both worlds to provide information, convenience and experience using each channel for what it’s best at.
 
In fact, we believe that the latter category is the one with the most potential in the new retail order. Sure, physical space is expensive and inflexible compared to the infinite “free” space provided by the online channel, and there is no doubt that in this difficult retail environment excessive space costs will hurt and continue to bring down previous champions as the recent demise of Focus DIY demonstrates. But the real winners of the new retail order will be those who have both physical and online channels to play with and play them smartly.
 
Examples of this strategy are starting to emerge, such as Halford’s and Mothercare’s space reduction plans, the announcement by House of Frasers that they were looking for smaller stores of 1,500sq ft to fulfill orders for click and collect customers, and Debenhams piloting online shops within its stores. Other examples include pure play online players who understand they need to win the convenience battle and are starting teaming up with bricks and mortar retailers to allow customers to pick up orders in store, like the rumored ASOS – Boots teamup.
 
To conclude, the growth of online won’t destroy the retail high street, but will force major shifts in the league tables, with the winners those who analyze what multichannel means for their sector and customers and how to use the channels they have, or can build, to best answer the three market forces now dictating the new “customer power” retail order: Information, Convenience, and Experience.

Click and Collect 10 years on

We are in 2011 and Argos is still winning “Multi-Channel Retailer of the Year” Awards ten years after it launched the first Click and Collect service in the UK. Let’s take this anniversary as an opportunity to review the state of one of the most successful retail inventions of the 21st century’s first decade. No need to speak to the experts - a trip to one of Sainsbury’s trial Click and Collect stores with “Collect in Store” placarded on giant banners, leaflets and staff T-shirts seems enough to suggest that the concept that seemed so revolutionary in the early 2000s has finally become mainstream.
 
Click and Collect (“C&C”) and its sister brands or concepts “Reserve & Collect”, “Order & Collect”, “Order online, collect in store”, broadly refer to the ability for the customer to reserve or purchase a product online and collect it in person in a physical store (rather than having it delivered home). With the active use of at least two touchpoints in the purchasing process, C&C epitomizes multichannel retail.
 
The importance of multichannel retail need no longer be demonstrated and new statistics on its size and growth are accumulating like open invitations for retailers to join in: “78% of consumers use two or more channels to shop” (ATG), “cross-channel sales will reach 38% of total retail sales” (Forrester), “36% of sales will be web to store by 2020” (Javelin), or “44% of non food transactions by value are digitally influenced and 20% are multichannel” (Deloitte).
 
In parallel, new research continues to confirm how much more profitable C&C customers can be. Research from John Lewis, Halfords, Waitrose and New Look amongst others demonstrates that on a yearly basis, customers using several channels to complete their purchases are worth 2 to 8 times more than customers using a single channel. Even on a single transaction basis, recent research from Deloitte indicates that multichannel consumers spend 82% more per transaction than customers who only shop in store.
 
In spite of these compelling arguments, the number of UK retailers having implemented Click & Collect remains low a decade after launch. According to eNova’s internal research, only 30% of the multichannel retailers listed in Retail Knowledge Bank’s top 200 list have implemented C&C services. If we were to plot that on the Roger’s innovation diffusion curve, we’d be midway through “early majority”. John Lewis only launched click and collect services in 2009 and Marks and Spencer their “Shop Your Way” concept in 2010.
 
Why has adoption been so slow?
The many practical challenges to C&C have surely been one barrier. The list of questions for retailers to consider would be too long to detail in this article but include: do I pick products from store shelves or from warehouse? Do I have good enough stock accuracy to ensure a product reserved online has not flown off the shelf in the meantime? Are my eCommerce platform and back end systems geared up for C&C and the demands of integrated data? Should customers pay for the item online or in store at collection? How long do I give them to pick up their orders? Does it cannibalise other parts of my business and who gets credited with the sale?
 
The more likely reason for slow take-up is that with improvements in other areas of ecommerce yielding a minimum of 15% market growth rate, and mobile and social gathering equally exciting momentum, it has simply not been a priority.
 
The question is, what are non-adopters missing?
The most recent results from 4 national multichannel retailers with C&C demonstrate the missed opportunity:

Argos (C&C launched in 2000):

Argos remains the only example of the longevity potential of C&C. In round numbers, total sales from the online channel are now worth £1.3bn and 30% of sales, having grown at 40% per annum over the past 7 years. Click and collect represents 70% of that at just under £1bn in sales, and has grown at an astonishing 60% per annum since 2003. To put things in perspective, online market growth rate over the same period has been around 25% per annum.

Halfords (C&C launched in 2008):

Reserve and collect penetration has reached an impressive 80% of online orders 2 years after launch.

John Lewis (C&C launched in 2009):

John Lewis’ online sales for their last year end reached a little over half a billion and 17% of sales, of which eNova estimates C&C represents 20-30% already growing at well over 100% p.a.

Marks & Spencer (C&C launched in 2010):

At M&S’ freshly launched “Shop your Way”, 13% of online orders are said to be collected in store making C&C a business potentially worth over £50m annually.

Are we correct to attribute these successes to C&C? There is without a doubt some level of cannibalisation occurring between channels. However, it is counterbalanced by three factors:

- On average 30-40% of customers pick up something extra in store as they are collecting their orders. At John Lewis, this argument alone suffices to justify potential cannibalisation. At Argos where there is nothing much to pick up, “non online sales” do show worrying trends at minus 6% per annum over the past two years.

- Customers are increasingly switching to retailers offering integrated C&C services as the limitations of home delivery take their toll. For many, waiting at home for a parcel to arrive or queuing at a depot to pick it up is simply not practical and the convenience of the C&C model, allowing the customer to pick up their product at their convenience, is a true differentiator. The old “share of wallet” metric has never been so relevant and it is no surprise that pure plays like ASOS are now trying to find collection points to keep their customers.

- Click and Collect is, when well executed, the cheapest fulfillment method for online orders by a long way.

Experience has shown us at eNova that investment payback on C&C implementations should be well within a year and we are yet to find an example where C&C is not continuing to grow well above market rates generating high level of enthusiasm from companies’ Boards and their customers alike.

To those of us who’ve been observing the industry for a while, Click and Collect can feel like a dinosaur in comparison with more recent developments like mobile or social. Yet it is surprising how many retailers are yet to embrace the opportunity. With data proving its success accumulating over the years, it remains one of the most proven ways to embrace multichannel retailing and one of the best tools to remain at the forefront of the growth pack in an increasingly challenging retail environment. 

“Explosion in mobile retail”, “the year of mobile commerce”, “retailers not embracing mobile retail as fast as they should”…versus “adoption of m-commerce still low” and “Are we there yet? Not by a long shot”. The great mobile debate is raging and leaving many of our clients confused as to their priorities.

It seems like a long time ago since one of our founders invented Text and Take Home for Argos; a service to find products and reserve via text which, despite and probably thanks to its simplicity, gathered an impressive take up from day one. 

Since then we have been monitoring the promise of barcodes on phones, wonderful interfaces and full shopping experiences moving shopping away from the home to people on the move.  One of our colleagues regarded in the mobile world as a pioneer returned two years ago from 5 years abroad and felt like he was stuck in a time warp, with the same promises but no real traction.  Finally the promises are starting to turn in to reality due to the impact of smartphones, tablets, and mobile broadband and wifi’s increasing coverage.

To give our point of view on the great mobile debate let’s start with a few facts. According to a Forrester study from last summer, only 2% of adults across Europe reported purchasing products from their mobiles and 5% reported being interested in doing so in the future.  Back home in the UK, things look a little rosier with stats ranging from ForeSee’s 8% (online shoppers making a purchase from their mobile phones this Christmas v. 2% last year) to Brandbank’s 17% (% of Uk population reporting to use their mobile phone’s internet connection to purchase products).

Some of the recent m-news seem to confirm that the year of mobile commerce may at last be upon us: Kiddicare announcing 2-5% of their sales were now coming from mobile devices 8 weeks after launching an app and mobile-enabled website, Shop Direct’s Mark Newton Jones announcing a 300% uplift in mobile transactions over the past 3 months, M&S receiving 1.2m visitors to their mobile-optimised website in 5 month and Halford’s mobile visitors representing 8% of total online with double the conversion rate. 

Given the impressive growth rates of the mobile channel, it is tempting to think that the train will leave without you if you don’t immediately jump on it no matter how small the penetration. Whilst we wholeheartedly agree with this statement for retailers such as those cited in this article, or an ASOS whose Chief Exec recently predicted that smartphone sales would represent 20 to 30% of transactions within the next 3 years, we can’t help but urge our clients to approach this question with caution. Marks & Spencer and Halfords are pretty much at the top of the multichannel game already and have spent a good few years fine-tuning their multichannel proposition and customer understanding. ASOS and Kiddicare are pure plays whose customers are by nature more smartphone/on-the-go candidates. For many still, spending a good chunk of an IT or a marketing budget on mobile phone apps could end up in tears if not properly thought through. The Brandbank study mentioned earlier also showed that only four percent of respondents found making purchases through their mobile hassle-free, and most of those who had a negative experience on a mobile would immediately go to a competitor. So in the same way we would advise our clients not to spend a penny on paid search (PPC) until their website provides a satisfactory customer journey and experience, our advice on mobile is that if it’s right for you to do it, do it right, which other than the budget to go with it involves all the other ducks already lined up in your multichannel strategy.

There are as usual a number of options for retailers and brands from text services to mobile-enabled websites to apps. Careful planning is required to ensure that, as happened too many times in the last 12 months, you don’t build something that becomes out of date quickly, requires additional resources to keep it going, or sends your customers away because technology or budget doesn’t allow it to be as sleek and fast as today’s demanding customers require. There are ways to be smart about mobile, too, and as in everything we do at eNova we place the mobile debate at the heart of the multichannel journey which in turn will tell you which option, from a simple text service all the way to a personalized barcode vouchers service, is the right thing for your business.

The interfaces may have got smarter and the opportunities bigger, but to get the best out of mobile requires getting away from the noise and hype for a second, and adopting a prioritized multichannel approach from build, to operating to promoting. 

Are you a social retailer?

We’ve invited one of the experts we work with, Pete Doyle, to give us a taste of what it means to be a social retailer. Lots more on his website and blog, ranked number one on the topic on Google.com!
 
If social retail is to be summarized in 3 words, it's about "having conversations online".  As with most technology-driven retail tools, the only way to become a profitable social retailer is to understand it's not about technology at all but about people! It is about developing relationships, making connections, managing conversations.
 
Being a social retailer means exploiting web and social technology to manage online conversations with customers and enable innovative engagement with employees and grow sales offline as well as online.
 
Good examples of social retailers can be found in all shapes and sizes.Zappos.com is a good pure play large social retailer which doesn't need to be introduced any more. They live the true multichannel customer experience, not just chat about it. But I've also found other retailers who I would call social retailers in my local home town of Reading.  Have a look at Greenparlour.com. How big do you think they are? They are a small village florist…They ooze socialness in everything they do. They have seamlessly integrated the phone, their shop, online and of course social media in their day to day operations. This makes for a completely consistent customer experience however the customer decides to shop. But as well as delighting customers, the often forgotten aspect of social retail is it empowering to the shop staff.
 
Social media is more than a marketing tool – it is to a way to connect to customers and empower shop staff. It is a way to grow their stores sales and build shareholder value.
 
And once you've gone over the technology hurdle, which takes a short training, social retail is simply about having conversations. My social retail blog is now ranked no 1 on google out of 350million pages and my social retail twitter account has a mark reach of 8.5million people on twitter. It's taken me 3 years but the trainings I run are about showing you the shortcuts to get there faster!

Pete Doyle, www.socialretail.co.uk

Multichannel quarterly market summary

The gloom and doom feeling was back in the first quarter of 2011 with BRC-KPMG  reporting the weakest monthly growth since 1995 for the retail industry at minus 3.5% like for like for the month of March. Cautious statements from retail Chiefs abounded from the likes of Sainsbury’s Justin King, Alliance Boots’ Andy Hornby and Next’s Lord Wolfson, warning about falling consumer confidence and the impact of rising costs and cuts on disposable income. As the Asda CEO put it during Retail Week’s 2011 conference, “the sun’s not going to shine tomorrow. Retailers are trading on a new landscape and it will be tough”. Read about the New Retail Orderin this newsletter.
 
Reasons to be cheerful included better than expected results from Next and Sainsbury’s, and as reported by Retail Week, “online retailers achieving their strongest quarter in three years in the first three months of 2011” with 18% growth for the quarter. Once again multichannel retailers outperformed pure online retailers with March online sales up 19% for multichannel retailers versus 6% for pure plays.
 
Outside of the UK, France’s eCommerce market’s growth slowed down to 15% for the first quarter of 2011 (Journal du Net quarterly eCommerce index) in a predictable slowdown mirroring the maturity profile of the UK market a few years afterwards.
 
Innovation and expansion strategies through the online channel continued to flourish at neck-breaking speed with the main levers 1. International, e.g. Next’s ambition to quadruple international Directory sales or Debenham’s plans to launch in 40 new markets; 2. Mobile, e.g. Pets at Home’s iPhone, ipad and iTouch’s app launch shortly after its first foray into the click and collect opportunity and 3. new channels / products, e.g. ASOS’ innovative Fashion Finder site featuring products from rival retailers.
 
The quarter saw heavy newsflow around store closures and the changing shape of the UK high street including store closures and space reduction announcements from Halfords, HMV, Oddbins, and Mothercare, the subject of one of the articles of this newsletter (The New Retail Order).
 
Morrison’s acquisition of Kiddicare for a rumoured EBITDA multiple of over 20 times took the market by surprise, not only because of the price paid, but because of the many speculations as to when and how the supermarket giant would enter the online market, the purchase of a pure play baby products retailer wasn’t one of them! Kiddicare is a successful business with potential in its own right so the jury is out on the financial success of the deal, but if you consider it as Morrison’s online way-to-market strategy, £70m for a non-food eCommerce platform seems a hefty price indeed.
 
Innovative multichannel initiatives included House of Fraser’s search for small stores to fulfill click and collect orders, John Lewis’ consideration to add petrol stations to its collection points for click and collect orders, and Debenhams trialing designated online shopping areas within its stores.
 
Finally, the Multichannel Retailer of the Year award went, once again, to Argos, whose £1.3bn of online sales have been growing at 40% per annum since 2003 and £1bn of click and collect sales at 60% per annum for the same period. We celebrate the tenth anniversary of the launch of the most successful click and collect scheme ever put in place in this newsletter in our article Click and Collect 10 years on.