Should stores charge for BOPIS?

By Tom Ryan, RetailWire

The following appears courtesy of RetailWire.com, an online discussion forum for the retail industry.

Claiming the current free service is "unsustainable" for retailers and logistical suppliers, John Lewis, the U.K. department store chain, is introducing a £2 charge for click-and-collect orders under £30 starting July 28.

Orders worth more than £30 will still be free to collect at John Lewis. The change also applies to Waitrose stores.

The additional charge affects only 18 percent of the retailer's orders and is designed to encourage shoppers to order more to improve the economics around BOPIS (buy online, pick up in-store).

The store handles six million click-and-collect orders a year, up from 350,000 when it was launched in 2008. Orders are processed at distribution centers and then delivered to the designated shop.

"We are sure customers will understand why we are doing this," Andy Street, managing director of John Lewis, told the Guardian. "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."

Street also pointed to the collapse last December of City Link, one of the U.K.'s largest delivery businesses, as a sign that many "illogical" business models stemming from omnichannel pushes have to change for retailers and logistics groups.

Competitors Marks and Spencer, House of Fraser and Next said they had no plans to start charging for click-and-collect. Sports Direct, the U.K.'s largest sporting goods chain, already charges for the service.

John Lewis made the announcement as Amazon rolled out one-hour delivery for £6.99 for Prime members in certain areas.

Discussion Questions: Should retailers charge for BOPIS? Do you agree that free BOPIS, at least for small orders, is unsustainable?

Comments from the RetailWire BrainTrust:

It's hard for the consumer to tell the difference between a BOPIS order that was picked from a distribution center and one that was picked from a store's inventory, which seems to be the growing trend. So it would be hard to explain why she was asked to pay more for a product that (as far as she knows) is already in the store's inventory. From the customer's standpoint why stop there, and why not charge her for the right to shop in the store in the first place? Unless you're Costco, good luck with that.

Bottom line: I don't see BOPIS charges happening anytime soon in the U.S. retail environment. Stores that are racing to figure out how to make BOPIS work for their market share aren't about to pass along costs to the consumer, and the idea of "free shipping" as a settled practice would make BOPIS hard to swallow.
-Dick Seesel, Principal, Retailing In Focus LLC

There is no "should" or "shouldn't" regarding charging for the service, it all depends on the overhead and level of competitiveness the retailer is seeking. The fact that free BOPIS is unsustainable for any given retailer is their problem. If consumers accept that BOPIS is a cost they have to bear, then retailers might try to get them to accept fees tacked on for health insurance, rent increases, etc. (tongue in cheek).

The bottom line with e-tail and retail is that the seemingly free services are paid for somewhere and somewhere is usually in the price of goods, be it obvious or not. The problem for the near future is that Amazon and a few others are eating brick-and-mortar retailers' lunch so they are going to have to find other ways to be competitive, or drop their margins to maintain the appearance of free services while paying for the overhead of operating physical stores.
-Ken Lonyai, Digital Innovation Strategist and Co-founder, ScreenPlay InterActive

Having dealt with both BOPIS and home delivery fees as a retailer in the past, both are necessary for the sustainability of the programs unless the retailer sees these programs in a more holistic view.

One way to rationalize losing money on BOPIS or home delivery is managing profitability at the customer level. Simple to say, but difficult to do. However, most retailers have the means to start looking at shopper segments in terms of overall importance to their sales and profit contribution.

For example, if a BOPIS transaction is provided at a loss, but it is known that most shoppers using BOPIS also shop the store at a very profitable level, then there is rationale to preserve the service in the name of retaining profitable shoppers.

While you can go broke rationalizing selling at a loss, Amazon and others do not seem to be too focused on near-term profitability, rather long-term market share. Maybe they are on to something.
-Mark Heckman, Principal, Mark Heckman Consulting

The notion of charging a customer for BOPIS is poppycock! (seemed like the right choice of words given John Lewis is British).

Keep in mind you're asking the customer to come to your store, you're not delivering it to their home.

Here's a better thought: How about leveraging the fact that you've actually got the customer into your store by selling them some other stuff? That was one of the original ideas behind this notion of BOPIS. Now it seems that some retailers view it as only a transaction, not an opportunity.
-Kevin Graff, President, Graff Retail

For some retailers click-and-collect is simply another value-added service that they're providing customers and it is a cost of doing business to ensure they continue to capture an increasing portion of each customer's monthly spend. Other retailers will look at click-and-collect and perform the simple math of taking their margins per order and subtracting out the operational cost of click-and-collect, and will arrive at the view that the economics do not work.

The most likely path forward for grocers will include a variety of components: grocers need to do a better job of telling the value story around click-and-collect (would you pay someone $5 to walk around a store for 30 minutes for you and pick up and bag your groceries?) They need to recognize which customers are truly valuable and loyal to them and determine if a click-and-collect fee makes sense given those customers' lifetime value. Where they decide to charge a click-and-collect fee, grocers need to ensure that the fee is commensurate with the value being delivered so that they do not discourage valuable shoppers from using the service. And they need to offer some kind of free trial to encourage shoppers to use click-and-collect so that any subsequent fee may be weighed by the shopper against the increased convenience (and hence value) of the service.

Click-and-collect and home delivery are valuable service offerings but they will not work in the same way with all shoppers or for all retailers. Each retailer will need to work out what is the right option for their customers and determine the right combination of components that will make most sense for their specific set of circumstances. It sounds like John Lewis is starting down this path and, with luck, they will evaluate various options so they can determine the right approach for their customers.
-Graeme McVie, VP, Business Development, Precima

I think most retailers will have a hard time justifying a pickup fee, considering the expectation of free delivery that has been cultivated by Amazon and others. Even factoring in the operation of drive-through sites, pickups have to be less costly than vans to homes.

Click-and-collect pickups aren't designed to get people in to the store, so retailers cannot count on impulse or add-on purchases to up the profits. Neither can they offer promotional opportunities to brands for incremental revenue (not subsequent to what happens on the ordering website, at least).

Retailers may look at the pickup either of two ways: As a stand-alone event that must deliver payback on its own or as an added-value element in a profitable customer relationship.

The home-bound commuter who wants to glide by and collect a six-pack and a box of nappies is part of a household, after all.
-James Tenser, Principal and Founder, VSN Strategies

Read the entire RetailWire discussion here.

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