Omnichannel realities kick in as free click-and-collect becomes too costly for John Lewis

Stuart Lauchlan Profile picture for user slauchlan June 30, 2015
John Lewis wants to be a leader in click-and-collect by canning its free service to certain shoppers and imposing a £2 fee. Will customers understand or revolt?

Middle England shopping

Flash back to March this year and John Lewis reaches an omnichannel tipping point as it announces that it’s now delivering more online orders by click-and-collect than by home delivery for the first time ever.

Some 54% of online orders were delivered to stores for pick up in a year in which click and collect orders grew by 47% compared to the same time last year.

Sir Charlie Mayfield, chairman of John Lewis Partnership, boasts:

The investments made over many years in systems, logistics and IT infrastructure combined to enable John Lewis to make more deliveries via click-and-collect than to customers’ homes for the first time. John Lewis was able to fulfil over 6.4 million orders over the year with 98.7% of parcels in store the following day.

Flash forward three months and it’s a very different story with the retailer now declaring that current online market practices are “unsustainable”. As a result some of those click-and-collect customers are now going to have to pay for the privilege of picking up their shopping at the store.

The problem? Too many small ticket purchases that the stores are having to process free of charge are eating into margins. Today the department store processes over 6 million click-and-collect orders a year, compared with 350,000 in its launch year of 2011.

So from the end of this month, John Lewis will impose a £2 charge on click-and-collect orders below £30. That will hit around a fifth of the firm’s online customers, based on current demographics.

The idea clearly is to encourage buyers to up their order values and buy more, and so avoid the £2 fee, or to direct them towards the home delivery option.

John Lewis managing director, Andy Street, says, I suspect more in hope than conviction:

We are sure customers will understand why we are doing this.

He explains:

There is a huge logistical operation behind this system and quite frankly it’s unsustainable. This market has got to be sustainable. It’s illogical this can be produced no cost. We think our customers will understand this is reasonable.

Customers understand John Lewis has been around for 150 years and we’ll be around for another 150 years. They understand we’re a good corporate citizen and can’t give everything away for free.

If he really thinks that John Lewis can spin this one past its customers, he’s sadly mistaken. This is one of Middle England’s happy hunting grounds. Street need look no further than sister firm Waitrose, which sparked chattering class uproar last year when it reneged on its free coffee offering for anyone who signed up for a myWaitrose loyalty card.

Inevitable change?

Nonetheless, Mark Lewis, John Lewis’s online director, tries hard to convince as well:

The change we have announced today will mean that the majority of orders will remain free of charge while allowing us to invest further in the expansion of click-and-collect to ensure it continues to delight customers as it grows in popularity.

There has also been reference made to companies who “pay their taxes” being unable to afford to offer permanent free delivery and collection. That’s a clear snark at Amazon, which this week announced a two-hour delivery offering for Amazon Prime customers in parts of London.

But it does seem that the click-and-collect sector overall is due for some kind of overhaul. Last month grocery chains Tesco and Sainsbury’s pulled out of a partnership with Transport for London which allowed customers to collect their orders from tube station car parks in London.

Rather than commuters picking up orders as they went home, shoppers were actually getting into their cars, driving from home and using the station car parks before collecting their shopping.

John Lewis online
Just make sure you spend enough for free collection

Patrick O’Brien, Content Director , Channels, DIY & Home, Electricals & Entertainment at retail sector analyst Verdict, reckons that the John Lewis decision is both sensible and inevitable:

The key driver for offering free click & collect is to benefit from the additional footfall, and retailers are improving their ability to get collecting customers to buy something additional in-store.

The problem is that as more people adopt click & collect, the average additional spend is falling, to just £17.81 in March 2015, from £21.37 a year earlier. Factoring in those who do not spend extra in-store shows that the average uplift reduces to £5.70 from £6.20.

This is being driven by changes to the click & collect shopper demographic: while it is still weighted toward the more affluent, click & collect is attracting more C2 and DE shoppers and so generating spend from them in-store is more difficult.

O’Brien cites stats from a March 2015 study of 10,000 online shoppers to back up his point:

  • 32% of respondents purchased something else on the last occasion they used click-and-collect, up from 29% year-on-year.
  • Those who spend less than £30 on a click-and-collect order are less likely to spend in-store than those ordering more than £30, 31% versus 34% of respondents.
  • The average amount the below £30 demographic spends is lower, at £13.79 versus £19.28.

Against that backdrop, the John Lewis decision looks pragmatic and longer-term. O’Brien concludes:

While the concern is that it will lose click & collect sales to its rivals by introducing the charge rather than convince low spend collectors to spend more with it or bundle orders, John Lewis realises that these are shoppers it can afford to lose, and that the pressures it is under are similar for its rivals, which may well decide to follow suit.

My take

I love it when Middle England gets in a rage. The letters pages of the Daily Telegraph and the indignant voices of Home Counties protest on Radio 4 will be most entertaining as word of this spreads.

But I can see John Lewis's point here. There are a lot wrinkles that need ironing out of the omnichannel retail business model. This is not the first and it won't be the last. What will be interesting now is to see how other retailers respond. Will they take the chance to follow suit and be able to say they didn't go first? Or will some of them turn their ongoing free service as a competitive differentiator? And if it's the latter, can they really sustain that model indefinitely?


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