Multi-Channel Retailing in the UK - Essay Example

Multi Channel Merchandising A Critical Evaluation of Multi Channel Retailing in U.K Introduction: Multi channel retailing is and will be a very important part of Retailing in U.K. It is certain that all retailers have a strategy in place to capture market in the multi channel retailing space. A failure to make headway in that area would be disastrous not just to get a foothold in Multi channel retailing. But retailing itself . Any retailer would ignore this at their own peril. Consider this1: By 2009, more than one quarter of all UK shopping will be conducted via the Internet or mobile devices in a market worth some 80 billion, according to IMRG. 35% of online consumers in the UK regularly use cross channel services. Multi channel customers drive more sales at a higher gross profit, and these customers tend to be more loyal. Over 60% of retailers found Multi channel customers more profitable. Last year (2006) e-commerce sales in Western Europe totalled $97 billion, up 36% from the previous year. In just three years the market is forecast to double its size. The Concept of Multi Channel Retailing: At the Dot Com Boom, It looked like that the Brick and Mortar Companies would go the way of buggy whip. Everybody would just go online and buy whatever they need without moving out of their house. Of course many a housewife would tell you shopping is more than purchasing a need or a want. It is an experience in itself. The concept of retail therapy is not a new one and will probably be never out of fashion. The Wall street learnt what these housewives knew already in the dot-com bust. The learning which came out this was that net would continue to be an effective tool in retailing but it was not necessarily a either/or proposition. All companies needed to have a presence on the net and other areas to reach a new market of customers. A Key report came out in 2001 after the dust settled on the dotcom bust2. The summary of it was as follows: Shoppers who use multiple channels tend to spend more and be more loyal. The study found that store shoppers, who also bought online from the same retailer, spend an average of $600 more annually in-store than the typical in-store shoppers of the same retailer. Shoppers who bought in all three channels -- store, online and catalog -- now represent 34% of online shoppers among those shopping at a tri-channel retailer. "Super" shoppers, as they are identified in the report, are more likely to be customers of all three channels and purchase four times more frequently online than the average online shopper. "Super" shoppers purchase from a retailer's store 70% more frequently than the average store customer and 110% more frequently from the retailer's catalog. The study reports that reaching the "super" multi-channel customer is primary to a retailers' success. Retailers face big risks if they don't support their online channel. Significant levels of cross-channel purchasing were reported. Online shoppers were found to be the most active, with 78% purchasing from both the Web site and the brick-and-mortar store. Among those with a preference, 73% of store shoppers prefer to research their purchases online. Store shoppers in the 35-44 age group were 24% more likely to look for or purchase items in-store that they previously had seen on a retailer's Web site. Shoppers with household incomes between $75,000 and $99,999 were 55% more likely to browse online before buying. Multi-channel retail excellence remains elusive. Many retail executives readily acknowledge that they are far from realizing rewards from true multi-channel integration. Discussions with retail executives showed a wide range of sophistication levels across a number of important business areas. Some retailers have received buy-in from senior executives and are measuring Return On Investment (ROI) in an advanced way -- using tangible revenue results and intangible factors. Other retailers are just beginning to take ROI issues to senior executives and are struggling with internal conflict over issues such as double counting customers. The majority of retailers looking at ROI in an advanced manner have history behind them-they tend to be catalog retailers, and according to this research, their importance to the future of multi-channel retailing excellence is crucial. Challenges for the Future The need to resolve internal and external branding issues to maintain cross-channel consistency. Development of a more customer-centric view of profit and loss (P&L). Institution of real-time inventory tracking solutions across all channels. The need to reevaluate in-store space due to changing buying behaviors of multi-channel consumers. Further retailer infrastructure investment to increase staffing and technology tools, in order to analyze and use effectively all the customer data across all channels. State of the Affairs in the U.K multi channel retail space in 20073: With online sales exceeding 4 billion a month for the first time in July 2007, the performance of e-retail sites has never been more important for both pure play and multi-channel retailers alike. According to a report by the Interactive Media in Retail Group (IMRG), the industry body for e-retailers, online spending rose to 4.2 billion in July, up 80 per cent year on year. While this is great news for a retail industry blighted by poor high street sales, such surveys provide only a top line view of consumer behaviour. Without doubt, this surge in online activity denotes growing consumer confidence, despite escalating fears of identity theft and poor online security. However, the figures fail to take into account the key issues of product returns, with associated costs, or customer churn/loyalty. Nor can top line sales figures reveal just how many consumers have attempted to buy online, only to give up in disgust as the transaction fails at the point of payment or items in the basket are revealed as out of stock late in the process. Just what is the opportunity cost associated with good versus bad online experience If organisations are to truly maximise this growing customer confidence they need to attain a far greater understanding into the consumer's true perception of the entire online purchase experience from first impressions through product search, payment, delivery and customer service. A Case Study of a Succesful multichannel retailer in the U.K ( Argos)4: Argos Direct, the delivery-to-home operation, is part of Home Retail Group, the UK's leading home and general merchandise retailer. Home Retail Group had sales of over 5.5 billion in the last financial year and sells products under two distinctive and complementary retail brands, Argos and Homebase, which are household names in the UK. The Argos web site is the second most visited retail site in the UK, with more than 100 million visits per year. The company also issues more than 35 million catalogues, which are found in over 70% of UK households. The Argos Direct "two-man delivery" team, which manages all large items, runs three warehouses in the UK. Acton Gate in Staffordshire is the oldest, and originally served the entire country. A second, purpose-built, 650,000 ft warehouse was opened at Marsh Leys, Bedfordshire and most recently a third was built in 2005 on the same scale at Faverdale, near Darlington. The warehouses now serve the middle, south and north of the UK, respectively. Both of the first two warehouses were operated primarily by a bespoke in-house system. This system was running order management, order taking, forecasting, replenishment and warehouse management. It functioned reasonably well but was not sufficiently scalable or flexible to cope with any significant increase in throughput. To upgrade the order management and order taking functions, systems from third-party vendors were introduced gradually, but for the third warehouse it was decided that an entirely new warehouse management system was required. The Solution Manhattan Associates' Warehouse Management for Open Systems was selected for a small pilot of 14 white goods stock-keeping units (SKUs) at the Marsh Leys site. Following the success of this project, the solution was implemented fully in the new facility at Faverdale. Radio frequency (RF) equipment from Psion Teklogix was selected to complement the warehouse management solution. The implementation went extremely smoothly and the decision was taken to upgrade the Marsh Leys warehouse to the Manhattan Associates solution. This next step was a far larger challenge for Argos Direct. The Marsh Leys warehouse employs 350 people and handles 10,000 SKUs, all of which would need to be moved from the old system to the new. Michael Allchurch, IS programme manager for Argos Direct, explained, "We spoke to other companies who had undergone transformation projects of this scale and knew that to ensure a successful transition, we had to manage the whole changeover process as a highly focused and committed team, following clearly defined procedures and lines of responsibility." Argos Direct was determined to keep any effect on the daily running of the business of the implementation to a minimum. They decided to phase in the new system progressively rather than opting for a "big bang" approach. The Implementation A "mirror" model was adopted for the implementation, whereby the new system and the old would run in parallel during the transition period. The old system was linked into Manhattan Associates' Warehouse Management for Open Systems so that information could be passed between the two. Initially, all stock coming in was entered onto the Manhattan Associates system and then passed to the old system for despatch. Stock was then progressively switched over in groups of SKUs to the new system. "There was no issue at all with data migration," added Mike Allchurch. "The only difficulty with the management of two separate systems was that orders sometimes contained items picked from both. However, our staff had been fully briefed and everyone was up to speed on how to handle this, so we were well able to cope with this as a minor inconvenience." The Benefits The progressive handover was a complete success. Not a single order was adversely affected by the transformation at Marsh Leys and the benefits gained from the upgrade were extensive. Efficiency increased in almost all activities, including receiving and put-away, pick and replenishment, loading and returns. A marked reduction in clerical work allowed Argos Direct to arrange its staffing more efficiently, and less paper made for savings on stationery costs. Speed of response improved and there was a reduction in failed deliveries. "With support from the team at Manhattan Associates I believe that we have achieved something that's pretty rare in this industry," commented Pete Connor, IS Director at Home Retail Group. "We have successfully implemented an entirely new system into a fully operational site without losing a day's work. We didn't miss a beat. This is testimony to the great planning, execution and commitment of all the teams involved and sets a very high standard." Within two weeks of completion, the project had passed the "stability gate", whereby it could be handed over from the implementation team to the regular support team. The Future The next step for Argos Direct will be to complete the upgrade of the company's distribution network by implementing the Manhattan Associates solution at the Acton Gate site. Following the success of the Marsh Leys implementation, the Acton Gate project is expected to take place over a shorter time period. Once complete, the company's headquarters at Avebury will have real-time visibility of inventory and operational activities at each of the three warehouses. The Case Study of Tesco: Tesco is one of the top brick and mortar retailers in U.K and is currently achieving the same position in the online Space as well. But it has taken seven years and some hard lessons to get to this point. The disaster in launching Tesco Direct is well documented. Ironically the person hired to guide Tesco Direct to online dominance in Non Food online retail was the former CEO of Argos. The Problems: Due to severe IT problems , the site was simply not available at the launch , which was a major embarrassment for Tesco. But Tesco's problems with internet are a lot older than that from the outset with Tesco.com. The lessons it learnt over many years which almost seem like as a text book on how a successful etailing site should be setup. 1. The site needs to attract customer on it's own. Tesco.com did not do that earlier. 2. It needed to clearly communicate the multi channel nature of the site. The items on the site should be available at the shop and vice versa. 3. Stock availability information should be available on site. 4. Shopping cart and easy check out facilities. 5. Prompt delivery of the purchased item. Though all of this looks obvious now, it took a little bit for Tesco to figure this or perhaps to implement this. But finally in 2007 Tesco and Argos are competing for the top two spots in the multi channel retailing space. Summary: In conclusion multi channel merchandising is not a co-ordination of many channels but an enhancement of the customer experience with each channel. The customer must feel that all the channels are the part of the same operation. However each channel must be judged on it's own as well to judge it's success of lack thereof. Read More