With price competition rapidly reaching an unsustainable level, differentiation amongst retailers is increasingly becoming focused on customer service and, in particular, delivery times.
Quick, and even same day, delivery are becoming the norm for online retail and this is creating a new advantage for retailers with a high street presence.
Whilst the centralised distribution centre model works for a pure play online business with ‘standard’ delivery times, next- or same-day delivery needs a distributed delivery model and this is easily built on top of an existing store network.
High street retailers are already nearer to their customers than a pure play’s warehouse, giving them a head start in the battle for delivery speed.
This advantage has most clearly been demonstrated by the bricks and clicks retailers through the rise of ‘click and collect’ models. It was a service pioneered by Argos and now adopted by a whole range of high street players.
Do you reserve products online before collecting them in store? How often?
Meanwhile, many supermarkets are also taking advantage of established physical networks by shunning the Ocado centralised distribution model for localised ‘pick and pack’ online services, where store staff fulfil local online orders in-store, removing the need for centralised warehousing and enabling faster delivery times.
On the tax front, the story is no longer positive for pure play online retailers. For many years online retailers exploited tax loopholes that were enabled by their remote selling model.
For example, the LVCR tax break on shipments from the Channel Islands enabled a huge boom in online CD sales, which came to an end in April 2012. Previously, retailers in the US could avoid some state taxes by shipping product from out of state, a loophole which is now closing due to appeals from Amazon and Overstock.com.
This removes another advantage of distributing product from remote warehouses and once again levelling the playing field between online and high street players.
Online fights back
The pure plays aren’t taking this new threat lying down and are working hard to develop faster delivery times and distributed delivery models.
Amazon, an early mover in the rapid delivery market with its Prime service, is investing heavily in its Amazon Locker service, which is essentially a ‘click and collect’ model. Amazon Locker users can select to have their products delivered to metal lockers which are generally sited – ironically – in competitor retailer’s stores.
This makes it more convenient for customers by increasing proximity and could even speed up delivery by reducing the need for Amazon to deliver to multiple locations.
eBay has also been working hard to offer faster delivery options. Its eBay Now service in the US offers same day delivery on products from local stores and its acquisition of Shutl in the UK implies that a similar option could be available here soon.
The company has also recognised the attractiveness of the ‘click and collect’ model and has partnered with Argos to allow customers to collect their purchases from retail stores.
However, whilst the online giants are attempting to match or exceed physical retailers in delivery convenience, this comes at a cost.
The much-vaunted cost benefits of centralised distribution and store-free retail are quickly being eaten away by the need to create a presence close to customers, whether this be through partnerships, locker networks or broader warehouse infrastructure.
The future of retail
So, does this mean that pure plays are dead, destined to be weighed down by delivery costs incurred in competition with physical retailers?
Does it mean that high street stores’ delivery advantages are only temporary and once the pure plays get their acts together, they will again be faced with certain doom at the hands of internet retailing?
Personally, I don’t think either extreme scenario is likely. The obvious outcome of this is a general move by both pure plays and high street towards a hybrid model – high street stores will learn to more effectively use their physical presence to benefit distribution, whilst pure play retailers will move more into the real world in order to get closer to their customers.
Indeed, leading dotcoms including Warby Parker, Just Fab and New Egg have already gone from pure play to opening high street showrooms and we’d expect many more to follow their lead.
The playing field of distribution will, in time, level out and the questions for retailers looking at their distribution models will become simpler and more focused.
Whether you’re online or on the high street, the questions you need to be able to answer will be does the technology work? Do you offer the delivery options that the customers want? And do you offer additional value through things like easy returns and extended warranties?
If you can answer these questions positively then you’re well set. In the future, the truly hybrid retailer with a vast distribution network, a high street presence for showrooming and a great online user experience will succeed, whatever the origin of its business.
Long term, there will be no difference between successful online and offline retail as the lines continue to blur. Ecommerce? No, it’s just retail.