Retailers begin to admit the true cost of click & collect

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Brought to you by Retail Insider and K3 Retail

Avoiding cliches is a major rule in journalism but I’m forgetting that now because the recent decision by John Lewis to impose a £2 charge on click & collect orders just has to be described as throwing the cat among the pigeons.

The reality is that for most retailers fulfilling online orders – in a world where customers expect free deliveries and returns – is a pretty costly exercise. It delivers little profit margin to most operators and in some cases it is a loss-making exercise. As more sales are sucked out of stores and go online the profitability of multi-channel retailers further deteriorates.

The emergence of click & collect has been something of a godsend for these retailers because it is a much cheaper way to fulfill internet orders than delivering to customers’ homes. And it has been ridiculously successful when you consider that for the likes of Halfords as much as 91% of its online orders are now collected in-store.

But there is still a cost attached to click & collect. This is partly down to the inefficient way most retailers’ supply chains are set-up. Online orders and store orders are not fulfilled in an integrated manner and will sometimes be dispatched separately even though their destination is the same.

In order to claw-back some of the lost margin from online orders retailers have lent heavily on their courier company partners – hence these businesses are so unprofitable and we’ve unfortunately seen some of them collapse.

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The announcement by John Lewis highlights how the company no longer believes it is sustainable to run its business in this cost-inefficient and structurally unsustainable way.

Although the company says that only 18% of its click & collect orders are for under £30 (and so will be unaffected by the £2 charge) it will be interesting to see how its customers react. Especially when a recent survey (from ICM/Retail Week) found 75% of people stated they were unwilling to pay for click & collect services.

This has not deterred Tesco from following the John Lewis lead as it last week increased by £4 its charge on all click & collect orders below £40. I suspect many more retailers will follow and even those that have initially suggested otherwise will highly likely fall in-line over time.

It looks to be the beginning of the end of the days when everything online is delivered completely free. And many retailers will no doubt be breathing a (sometimes hidden) sigh of relief.

Glynn Davis, editor, Retail Insider

K3 Retail deliver multi-channel solutions that enable retailers to create joined up shopping experiences for their customers whether they choose to buy on-line, direct, in-store or via mobile. It has over 20 years’ experience delivering award winning solutions, to more than 175 internationally recognised retail brands.