March 8, 2016

Guest blog: What does omnichannel mean for Finland? Thoughts from the UK

Dr Richard Cuthbertson

, FiDiPro Fellow, Aalto University / Research Director, Oxford Institute of Retail Management, Saïd Business School, University of Oxford

We live in a consumer society that is built on revolutions. The agricultural revolution put food on plates across communities; the industrial revolution produced branded products to be distributed across our nations; and the digital revolution is now linking consumers directly to global players through a network of organisations. We have moved from co-ordinating a few basic local foodstuffs to managing a diverse mix of global products and services through a complex web of channels and formats.

Sales were up 7% at John Lewis department stores in the UK last Christmas, in an economy that is almost flat. However, sales were down at John Lewis stores, by about 3%. It was online sales that were growing, accounting for 40% sales during this critical period, with sales via tablets and smartphones up by 31%. As the John Lewis chairman, Sir Charlie Mayfield, stated in a BBC interview, “the way customers are shopping is changing”. He went on to make the point that the stores supported many of the online sales and so where a sales transaction takes place should not be the only measure of success.

A more recent announcement in the UK was the intended purchase by the grocery retailer Sainsbury’s of Argos. Argos is a large general merchandise retailer with over 750 retail stores, and perhaps most importantly, the ability to provide an online service that allows customers to order as late as 18:00 in the day for delivery at home before 22:00 on the same day. When the CEO of Sainsbury’s, Mike Coope, announced the £1.6 billion (over Euro 2 billion) offer, he claimed that the aim was to “future-proof” the business, allowing consumers to shop “whenever and wherever” they wish.

Both of these examples, Sainsbury’s and John Lewis, reflect the revolutionary changes taking place in the UK retail sector. People in the UK expect to be able to shop at all times through all channels and formats and are increasingly doing so. UK retailers are having to face up to the management challenges of working within such a market.

Within the grocery market, all major retailers offer digital solutions, allowing delivery to the home, workplace, or local store. Alongside the major players, digital only platforms, such as Ocado and Amazon, also offer online grocery shopping. Online grocery retailing represents around 5% of the market and is growing year on year. However, these home deliveries generally cost more to deliver (perhaps £20 each) than is being charged directly for delivery (perhaps £5 each). Hence, the rise of different management initiatives: dark stores, click and collect, pricing thresholds, loyalty subscriptions, consolidated deliveries, and automation.

The situation in non-food products is also increasingly moving online. According to the British Retail Consortium, 21.5% of all non-food retail sales took place online during January 2016 in the UK. Non-food products are easier to deliver without damage and can more easily take advantage of the scale of third party carriers, as well as usually having higher margins to help cover delivery costs. Never-the-less there are still significant management challenges, not just of organisation but also for infrastructure and the economy. With so many sales moving online, what is the right balance of store portfolio and web development? Tesco in the UK have already sold off £250 million (Euro 320 million) worth of large retail sites. What is the transport network required to make many micro deliveries to the home rather than one large delivery directly to store? What is to stop global omnichannel retailers from taking sales out of a domestic market? Amazon and Starbucks have already been criticised in the UK for making huge sales in the UK without paying enough back into society in the form of taxation.

Is omnichannel retailing any different to traditional retailing?

Consumers have always wanted new products, new services, new formats, new channels. The challenge is to understand the balance that is right for the retailer concerned. No retailer can ignore online, in the same way that no retailer can ignore price or service. So, discounters, mass merchandisers, and upmarket retailers all offer an online presence but it varies: all offer a price promise but it varies, and all offer service but it varies.

The challenge is always to balance the customer experiences, service system and business model to make a successful organisation. The Red Queen Effect research project aims to better understand the required strategies for such an innovative landscape.

Read more about the: Red Queen Effect international study

Read more about Customer Experience Management and retail solutions. 

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