Tuesday 7 July 2015

Offline limits to online growth: Is click-and-collect 'cannibalising' retailers?

Given that the cost of fulfilling an online order is approximately £20, and market willingness-to-pay appears to have an upper limit of £5 per delivery, it is obvious that a retailer loses £15 per online order.

Charging for Click & Collect merely addresses the 'front end' of this problem in terms of covering some of the real cost of the 'final mile'. It also means that John Lewis introduction of a  £2 charge is possibly adding to the problem by giving the impression that a home delivery option is worth the difference - £3...

Meanwhile, for a Bricks & Mortar retailer in a virtually zero-sum flat-line environment, any scale advantages will be neutralised by increasing redundancy of physical space.

With Click & Collect growing at 20-30% per annum, the real issue for retailers is that the growth of their online business not only cannibalises their regular in-store sales but also causes them to lose more money as online sales increase.

In a flat-line demand environment with market share increases having to come at the expense of the competition, it would appear that major physical retailers are in a race to the bottom in terms of profitability.

Meanwhile, Amazon and other pure-play online retailers will grow at the  expense of physical players until a point is reached where even their growth is limited by consumers' refusal to pay adequate rates for order fulfillment.

For suppliers, this means that having managed to take the GSCOP-route out of the extremes resulting from dealing with the Big 4 multiples, we may be unconsciously accepting the even tighter harness of the online route to consumer...

In other words, with the benefit of hindsight, it might be wise to anticipate, prepare for and negotiate fair share dealings from the start, rather than require a Mk.2 GSCOP rescue sometime in the future...

No comments: