Is this the beginning of the end for free click-and-collect?

John Lewis made a ‘brave decision’ to start charging for click and collect purchases under £30 but other retailers are unlikely to follow suit in the online battle for customers and revenues.

Today (6 July), Marks & Spencer’s announced plans to expand its free click and collect service to 100 more of its Simply Food outlets operated by third parties such as Moto. Other retailers have said they have no plans to change their click and collect offerings.

However, industry observers suggest others will be looking at John Lewis with envy.

“Charging for click & collect will be an interesting test of John Lewis’ brand vitality and if it is successful others will watch with a mixture of awe, envy and mimicry,” says Clive Black, head of research at Shore Capital.

The changes mean John Lewis will now charge a standard £2 fee for anyone that wants to pick up online orders at either its John Lewis or Waitrose stores, or at designated Collect Plus outlets. John Lewis’ managing director Andy Street said that the previous system had become “unsustainable”.

“We are sure customers will understand why we are doing this. There is a huge logistical operation behind this system and quite frankly it’s unsustainable. We consider ourselves to be leaders and we want to take the lead on this,” he explained.

The economics of online shopping

David Walmsley, director of M&S.com, says the retailer’s decision to continue offering free click and collect comes because it is popular among consumers. Around half its website orders are picked up at a store.

“By extending the service to locations such as railways and service stations, which may form part of customers’ daily journey, we hope to make it even easier and more convenient for them to shop with M&S,” he explains.

Given its popularity, retailers all are keen to be seen to be championing the consumer and making it easier for them to shop online.

That means the deadline for free next day deliveries is being pushed later and later, while some retailers such as Argos are promising same day collection from a number of its stores. Amazon last week started offering one-hour delivery (admittedly for a £6 charge).

Richard Hyman, retail analyst and owner of richardtalksretail.co.uk, says what the industry is seeing with John Lewis’ move is “economic reality kicking in”.

“It is heresy to say this but it’s cheaper to sell a product through a shop than online.”

Richard Hyman, retail analyst

“There are costs for online retailing. People are seduced by the idea that websites are cheap to develop, that there are savings to be had by not having a landlord charging rent, local authorities charging rates.

“But online is a more expensive route to market. Fulfilling orders is very costly, even if its click and collect and you are getting the customer to do some of the work,” he says.

Black highlights the case of online grocer Ocado, which he says has “barely made any money after 15 years of trading”. He adds that the move by John Lewis is “wholly understandable and logical”, especially in the competitive online market.

“[Retailers] seeking the illusion of long-term loyalty will fritter away a lot of money to try and win market position and loyalty in what is often the most disloyal of market places,” he says.

Will other brands follow suit?

John Lewis holds something of a unique place in the British retail landscape. Hyman says the fact it has a strong relationship with customers means there is less risk for the brand in suddenly charging for something that up until now has been free.

“The starting point of the brand relationship is key. If [a retailer] has got a mechanical, functional relationship with the customer and doesn’t really add a lot of value suddenly charging for something they haven’t been is clearly far riskier than in the case of John Lewis.

“[John Lewis] has a substantial amount of goodwill built up over many decades. People will think ‘they aren’t doing this to line their profits, there will be a good reason for it’,” he explains.

Nevertheless, Verdict’s retail analyst Patrick O’Brien believes we are likely to see more retailers follow its lead.

“While the concern is that it will lose click and 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,” he says.

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Comments
  • Alex Levashov 12 Jul 2015 at 12:30 pm

    Interesting development. I see number of possible consequences here, both positive and negative:
    1. Some customers may be annoyed and move with their small ticket purchases elsewhere
    2. Some customers will don’t bother
    3. Some customers will buy an extra item to fit in free threshold
    4. Some customers who used the service and actually never placed order below new free pick-up threshold will value it more since they get that service for free, while others don’t

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