‘You do not want to give Amazon a seven-year head start.’
Warren Buffett, US business magnate1
In Chapters 11 and 12, we saw how the store of the future will have to evolve to simultaneously reduce friction and become more experiential. The influence of digital on the shopping journey has also increasingly seen the role of the store develop as an online fulfilment hub. Before e-commerce, the only supply chain logistics a retailer had to worry about were getting products from suppliers to the distribution and fulfilment centres, and then into their stores.
In the early e-commerce days, retail executives recalled exasperated calls from store managers demanding to know if online returns they had to accept instore would ‘come off their targets’. It was then that established bricks and mortar retailers making their first forays online began to realize the true impact of e-commerce on their stores. They recognized that they could turn the fact that they had not foreseen online returns impacting their bricks and clicks presence into an advantage over the likes of then-pure-play Amazon by managing both the fulfilment process and the returns instore. They were happy to embrace this new store role if it meant shoppers assuming the delivery costs when they came in to pick up, which the retailers themselves would otherwise incur, particularly when they had to reschedule missed deliveries. This is a particular challenge for e-commerce operators when you consider return rates can be as high as 40 per cent in sectors such as fashion, and one study found that 1 per cent or more of all revenue can be lost due to delivery fraud alone.2 Little did they know how popular these so-called ‘click & collect’ services would become.
Many European countries were first to see the widespread adoption of click & collect. This is due to a number of factors: prohibitively high e-commerce delivery charges; the geographic density of its populations, where they were never far from a retail chain’s store; high internet broadband and mobile access; and consumers’ relatively mature acceptance of alternatives to cash payment, with card-not-present and cash-on-delivery transactions facilitating the remote shopping model of e-commerce in the first place. The click & collect operations of French grocers and other retailers give 80 per cent of the population access within 10 minutes to some 4,000 pickup points. Known as ‘click and drive’, the fulfilment method already accounts for 5 per cent of grocery sales in France and is expected to reach 10 per cent in the next decade.3 UK consumers are also enthusiastic click & collectors; a study forecast that click & collect sales will account for 13.9 per cent of total online spend in the UK by 2022.4
On Amazon’s home turf in the US, the impact of click & collect fulfilment on the store has developed using drive-through additions to existing large formats, as it has in France. Target, Walmart and Kroger have expanded or plan to expand their click & collect ‘Drive Up’, curbside pickup and ClickList locations respectively to 1,000 each through to 2019. The introduction of automated ‘kiosks’ by Walmart for grocery order fulfilment takes this development to its most sophisticated incarnation. The US giant has employed learnings from its UK subsidiary Asda, which uses similar kiosk concepts, in support of reducing the extra operational overheads associated with e-commerce delivery. These larger kiosks are designed to fulfil grocery orders over $35, which are picked and packed by store staff. The 160-square-foot buildings are located in Walmart supercentre parking areas.
Like all click & collect services, Walmart’s kiosks also serve to balance its e-commerce growth by incentivizing store visits and potential additional footfall. Retailers have found that click & collect customers can drive instore footfall and incremental spend through increased instore conversion rates and basket sizes. A 2015 UPS European shopper survey found 47 per cent of its respondents had used an instore collection service and, of these, 30 per cent had made additional purchases during their click & collect store visit.5
By comparison, before it could even think about acquiring a physical grocery chain, Amazon made its first foray into click & collect via lockers. The first Amazon Lockers appeared in Amazon’s home town of Seattle, as well as New York and London, in 2011. Customers can choose any locker location for their delivery and receive a unique pickup code via e-mail or text message to retrieve their orders, which they enter on the touchscreen of their assigned locker to open its door. Amazon has scaled its locker service by partnering with retail property owners to place the lockers in shopping malls, and in the stores of retailers such as 7-Eleven and Spar, as well as Co-op and Morrisons in the UK. Amazon Lockers can also be found Canada, France, Germany and Italy, while the company is not opposed to using less traditional locker locations, including public libraries6 and urban apartment complexes, with its locker-based Amazon Hub service.7 As of 2018, Amazon Lockers were currently located in more than 50 cities, across over 2,000 locations.
The beauty of lockers is that they eliminate specific last-mile fulfilment issues, such as theft, missed deliveries and the need for redelivery, as well as the associated added costs. Customers can also return unwanted goods using the system. But not every third-party Amazon seller can make use of the locker option if the carrier they use relies on a system that requires a signature to confirm receipt of delivery (although Amazon Hub delivery lockers accept parcels from all carriers). There is also the fact that Amazon Lockers are also unsuitable for perishable goods. With a larger online grocery market, Europe has led in the development of temperature-controlled click & collect lockers. Here, emmasbox is worthy of note. The Munich, Germany-based start-up supplies its refrigerated pickup stations for online food order fulfilment to the country’s public transport authority, Deutsche Bahn, as well as other transit locations such as Munich Airport and grocery retailers Edeka and Migros. French retailer Auchan introduced 250 temperature-controlled click & collect lockers for groceries in the Saint-Etienne area in 2017 shortly after discounter Lidl also installed three pickup points for online grocery orders in Belgium. Other models, such DHL/Deutsche Post’s Packstation in Germany, La Poste’s Cityssimo in France and ByBox in the UK, are based on the provision of full-blown pickup locations in or near transport hubs or other high-traffic footfall urban areas, rivalling the role of the traditional post office or FedEx and UPS retail outlets. Even Amazon UK customers can pick up their parcels from Doddle’s 200-plus locations, for example.
When it comes to targets, many retailers now measure the impact of e-commerce by factoring the order location into store-based or regional sales. This is why industry consensus still credits between 80 and 90 per cent of global retail sales as being ‘completed’ in a store. A customer may order and pay for a product online, but then choose to collect it from a local store or third-party location at a time that’s more convenient for them, while also often allowing them to forgo the premium of a delivery charge. When it comes to delivery charges, Amazon was one of the first to use free delivery as a lure for more customers in 2002. It introduced its Super Saver shipping offer, lowering the threshold from $100 to $25. Outside of its Prime membership scheme, Amazon today offers free shipping on orders of $35 or more of eligible merchandise.
So, the retail industry has had to become increasingly obsessed over the ‘last mile’ since internet access became ubiquitous and interfaces pervasive, and as demand for near-instant fulfilment has soared. Traditionally a term used by telecommunications network providers to refer to the infrastructure that physically reaches the end-user’s premises, the ‘last mile’ has been adopted by retail to refer to the last stage in the product or service fulfilment process. Replenishment to store, home delivery, or a hybrid of the two: fulfil-to-store for click & collect, or lockers on third-party premises, for example. Research we conducted while at PlanetRetail RNG in fact revealed that there are over 2,500 permutations of the retail fulfilment process today (see Figure 13.1).