#eCommerce The UKTop500 from RetailX is always stacked. Thank you Ian Jindal and all your contributors for another bountiful piece of work. Each time it is released, I try to write multiple approaches or thoughts and end up losing them. Today, I stuck the course, As a market for omnichannel commerce, the UK is one of the most competitive and mature. It is also full of people who really care about making these experiences better. They have the scale and they the talent. This is why I always pay attention to this report. Right now though, commerce is in flux and under challenge. Just this morning John Lewis & Partners yes that John Lewis announced an annual loss of £234M against revenues of over £12B. There were exceptional items, write downs on Waitrose & Partners stores, but this is a big number and a worrying number. Shoppers increased but sales decreased - 2% on core and 3% on grocery, the habits are changing and wallet share is going elsewhere. I wanted to look at this report through a different lens today. Performance over the last 2 years (courtesy of Conjura)
Conjura new conversion rate by Region
GMV by revenue bucket
Thats is the backdrop. That is where we are.
For almost 20 years, we approach ecommerce through the eyes of the UK trailblazers. I am asking the question, is it enough? Is it right for retail today?
The report opening - Evolve and Survive
Opinion: The current model does not work. Legacy it seems, needs change.
ONS insolvency statistics published in February 2023 and analysed by restructuring and insolvency specialist PKF GM showed that 22,109 businesses failed in 2022. That’s 57% more than in 2021 and the highest level of failures since 2009.
In recent months, retailers listed in last year’s RetailX Top500, from fashion retailers Joules and M&Co to furniture retailer MADE.COM and RetailX Growth 2000 company, Eve Sleep, have gone into administration. Next has bought both Joules and Made, while Bensons for Beds has bought Eve Sleep.
More may follow them in 2023, although the opening weeks of 2023 have seen energy prices easing off, so if inflation reduces in line with expectations, it may be that consumers’ appetite for shopping will recover. All of these factors make it ever more important for retailers and brands to serve shoppers in the way that they want to buy – whether that’s online, instore, via mobile or a combination of all of the above. For while shoppers have less to spend, they still have priorities.
Direct to consumer is our saviour. We love it, it is f*ckin, amazing. Guess what. It ain't your friend.
Direct to consumer (DTC) presents a challenge to most. We have to be where customers are, when they want, how they want - the diagnosis as I see it is that customers are not loyal. The don’t (usually) determine a purchase channel prior to buying, they act in the moment. They want value, quality and somewhere in the back of the brain, they want to feel like they are doing right by the world. Knowing how ecommerce works, this does not make for pretty reading. Unit economics are being scrutiinsed now more than ever. And let’s be really honest, retail hides a lot too - it is not as exposed as digital or ecommerce. Like for likes, therefore are incorrect. They way that marketing needs to happen is at direct odds with the financial timescales over which we report - marketing will always be the unwanted child.
I live in Ireland - small, island economy with a limit of about 5M people. eCommerce at scale for everyone, delivering profit is NOT POSSIBLE.
We don’t have enough talent - not to say talent does not exist.
We don’t have enoch customers.
Our economy relies too much on consumption.
We compete in the same small geography for a finite resource (customer spending power).
Evidence today says that the UK is in this boat too. (lets not mention boats, eh Gary Lineker).
The picture I painted of John Lewis falls into this mode too. So, where are the next wave of customers coming from - Africa, I hear you say, all 1.4B people. You are deluded. Some simple facts:
In 15 of 54 countries, the cost of 1GB of data is equivalent cost of 10% of your monthly salary. Infrastructure on this enormous continent does not support next day delivery or sometimes even same week - why should it?
Infrastructure projects fail feasibility 80% of the time. Africa cannot have ecommerce the way we do it - they have got to find their own way. That is what I believe, that is how Ireland and other small economies punch their way out of this. Through this view, I want to look at the top500 and see what we learn, what nuggets are in there.
What can we avoid in our future.
Let’s start with where it should start. JD Sports Fashion plc Sports say Everything we do revolves around our customer. This is important in the context of who their customer is and how they behave -
“JD operates in the strongest part of the sport and fashion market, and our target customers have an increased buying power due to their younger demographic and lower unemployment figures,” says Paterson. “We have found our customers, typically 16 to 24, have proven resilient and more sheltered against the impacts of increased cost of living. The products we sell are a very important part of their lifestyle and identity, so they will prioritise this expenditure.”
Next Set up retail media in 2015, extended digital shelf around the same time. They build dummy stores in Leicester in the early 2000’s and have always invested in the long term. Pricing has been relatively stable and no over supply on the store side. Brand wise, they know themselves, they know where they belong. As Jason Bateman might say, they stay in their lane.
Profiling the top 500
64% of them are fashion accessories. Low value, low margin. Not sustainable. Easy to replace.
80%+ Sell sports clothing and footwear
4% are DIY and Trade - I expect this to improve over the years ahead. It is a category with an industry vision. I have seen it, it will just be “measured twice, cut once”.
Marketplaces dominate traffic - 58% of visits to the top500.
Getting people to buy more, how?
Investment in technology
Investment in product relevance tools
Understanding the product value chain
Simple but effective
Maternity retailers give shoppers most time to return unwanted orders - why wouldn’t they. It is a mad time for most people. How could you possibly think along the lines of retailer compliance during this period of your life? Customer first.
Conversion Killer no more?
64% of retailers now require customers to register before they checkout. Forget what you thought you knew.
83% of retailers refund opened products taking an average of 12.1 days to process a refund. PRO TIP: Design a policy that allows the customer to do their job and start the process of returning an item. Refund at that point. Once POD is shared, trust your customer. I am gobsmacked at how poor this is.
For a market as mature, this is a winnable metric - only 16% enable local stock checking on stores. In a country where the high st model exists in most towns and store front/names are ubiquitous, this would positively impact experience, conversion rate, reduce returns and cost too - investment in this core infrastructure would change this experience for the better, relatively quickly. And it is a great defensive strategy for larger, well oiled machines.
Upsell - lets get profitable
43% of cosmetics retailers offer upsell in checkout. In general, the upsell is happening only 27% of the time.
We are in the age of incremental commerce. I think, again, this number closer to 80% would yield better results all around.
Do we really need same day delivery? Do we need next day?
My view has always been that marketplaces forced us into a false economy here. We need strong, certain services, with more cost effective ways of operating. These service offerings have stagnated and the market for Qcommerce has started to amalgamate and investment in the sector, is rightly slowing down.
Stores are important. Look back at the administration numbers and tell me how an average spread of 104 stores in operation on a territory like the UK is viable.
TELL ME - I asked ChatGPT4 (why not)
Assuming the 104 stores were equally spread across the UK land surface, we could estimate the average distance to your stores using the following formula:
Average distance = √(Area / Number of stores)
where Area is the total land area of the UK, which is approximately 243,610 square kilometers, and Number of stores is 104.
Plugging in these values, we get:
Average distance = √(243,610 / 104) ≈ 15.9 kilometers
Therefore, if the 104 stores were equally spread across the UK land surface, the average distance to your stores would be approximately 15.9 kilometers or 9.9 miles. However, it's important to note that this is a rough estimate and actual distances could vary depending on the actual locations of the stores.
So on average, we are servicing an area of 16 miles and placing the burden of cost on ourselves to make this viable. I will be blunt, it is not viable. This should reduce. Invest in your tech, leverage partners, this is not sustainable, in any sense of the word.
In the second tier of retailer, we see some interesting trends.
They are niche (ish) - Sports and Outdoors and Cosmetics/Health.
The 20 retailers and brands of the Leading category sell products ranging from health and beauty to fashion and footwear, from equipment from outdoors adventures through to DIY and trade tools and from homewares to groceries.
The group is dominated by multichannel retailers while the pureplays that feature are strong performers in niche markets. From the health and beauty sector, Boots and Holland & Barrett are both listed, alongside beauty brand L’Occitane and pureplay LookFantastic. There are three outdoors retailers – Cotswold Outdoor, Ellis Brigham Mountain Sports and Go Outdoors. Three footwear specialists, Office, Schuh and Shoe Zone; and two fashion retailers, Marks & Spencer and Superdry, appear to be benefiting from a strong recovery in markets which were previously constrained during the Covid-19 pandemic. M&S also sells homewares, a category in which Dunelm has a strong omnichannel presence. Strong specialist performers include technology and electricals business Currys and motoring-to-cycling retailer Halfords. Niche musical instrument pureplay GuitarGuitar outperforms its size. The profile switches to home and DIY and profiles Dunelm and Toolstation.
This category will succeed on experience - why?
Improving data standardisation
Reduction in physical footprint is inevitable as economic and social changes will result in family owned operations closing.
They have experts using the products designing the use cases - they will get this right.
Fashion is hard. The way it is bought and arrives in business make this process difficult to be exceptional. Online department store Very has invested heavily in automation in areas from its warehouse to the digital customer experience – enabling fast delivery, relevant recommendations and, in the Very app, chatbot-based customer service.
In the absence of physical stores, they keep suppliers on their toes and used third party providers. This is a model to scrutinise in the positive.
The retailer, whose fully automated SkyGate warehouse opened in March 2020, offers one-day delivery as standard for orders placed by 10pm, Sunday to Friday, at a cost of £3.99. Premium delivery services include nominated day, direct from supplier and larger item services. Click and collect – from one of “thousands” of stores, including Post Offices and Yodel network collection points – costs £3, or is free for orders of £30 or more. Returns can be made for up to 28 days, through a Yodel or Post Office collection point, free of charge using a pre-paid label.No over reliance on 1 service provider either, mitigating key supplier risk.
The trusty old guard - SMS and QR code
I have used Attentive - it is exceptional in terms of ROAS - if that is your bag.
At Attentive, our research tells us that 90% of UK customers are already subscribed or interested in subscribing to brand text messages. Early movers will be the first to gain that valuable place in their customer’s inbox – and the better they know the customer, the more personalised the experience will be. US retailers are taking the early strides in this direction now and as with many previous technology innovations, their counterparts in the UK and Europe are likely to follow fast on their heels.
We do not need to recreate the wheel - we need to use it better. Wheels are friction free and built to get places easier.
I think the UK market needs to change. Drastically. Not as drastic as the Brexit decision but as a trading block, it is becoming increasingly challenging to yield a profit there. I didn't even look ar marketing. This is about business models, how brands handle experience. The writing is on the wall when it comes to marketing.
Tech Companies to watch around experience? Talk to Fergal O Mullane. But
And talk very closely to Michael Zakkour
So when people ask me about the future of ecommerce, I have begun to come to the conclusion that the way we got here is not necessarily the best way forward.