Online retailers: can the personal touch make the difference?

AO World thinks it can steal a march on rivals by delivering the goods itself. But they're not the only ones who have had the idea...

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The Independent Online

Stop anyone in the street and ask them if they have ever had a problem with an online delivery where it has failed to show up on time, gone missing or was signed for by a neighbour without any note from the courier and the odds are high they will say yes.

So John Roberts, AO World’s markedly self-confident chief executive, attempted to put a brave face on a disappointing maiden set of results for the online fridge, television and washing machine seller by offering a solution to such delivery disasters.

AO’s big advantage, he explained, was the company’s exemplary customer service record and unique business model whereby the firm controls its own deliveries “which enables us to completely own the customer experience”.

This avoids AO having to place responsibility for the last mile of the order in the hands of third party couriers, some of which have faced heavy criticism for late or missed deliveries. But just how special is this selling point to AO, in a year of losses totalling £2.9m and a share price that has plunged more than 40 per cent since listing? How far off are its high street rivals from catching up with the eight year old business, which said the loss was down to the speedy expansion in Germany?

And will investors have to wait a decade like another online upstart, Ocado, before they can see AO banking a profit, when it will hopefully be in enough European countries to make it financially viable?

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Controlling all deliveries in-house may not necessarily make the best sense for some retailers

Helen Dickinson, director general of the British Retail Consortium, explained how serious the delivery issue is for the sector and how far retailers have come to up their game.

“Retailers have spent hundreds of millions of pounds and several years successfully developing their brands online to make them fit for today’s multichannel world,” Ms Dickinson said. “So now that they have found a new way to operate that customers really like, it is key that they get the service absolutely spot on.

“Many of our members have embraced this challenge, especially in the final mile delivery to customers’ front doors, because bad service or a missed delivery can make or break all the hard work gone into making that sale.”

Far from being unique, AO’s model is already being considered, and in some cases, implemented to allow retailers to have full control over their deliveries of bulkier items that require two delivery firms. John Lewis already uses its own partners for deliveries to customer homes for bulkier items.

Staff are part of the “green van fleet” and have a direct incentive to get the job done well as their John Lewis Partnership bonus depends on it.

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Currys PC World has control over about 50 per cent of its home deliveries that require two workers

 

Over at Dixons Carphone – the company behind Currys PC World, one of AO’s fiercest rivals – the company also has control over about 50 per cent of its home deliveries that require two workers. Its chief executive Seb James has said in the past that home delivery was a key area that must be improved and he also focused heavily on reducing prices to match or beat AO.

Home Retail Group, the company behind Homebase and Argos, has also invested heavily in its delivery infrastructure, building a hub-and-spoke model which aims to have goods delivered to stores within four hours.

A trial is already under way to have smaller packages delivered by Argos staff to customers’ homes, although bulkier items are delivered by third party firm DHL with staff dressed in Argos uniforms.

But controlling all deliveries in-house may not necessarily make the best sense for some retailers, according to experts.

Niklas Hedin, chief executive of Centiro, which provides advice and assistance to global retailers looking to improve their delivery networks, explained: “We worked with one international company which wanted to do it everything themselves, and they soon realised they couldn’t do it because it becomes too complex and expensive.

“The general movement we see is more towards using more and different services. It is no longer economical to manage everything in-house. If you try to scale that on an international level, it quickly becomes expensive and difficult to control.

“Retailer start to see deliveries as part of their brand and adapt accordingly, but before deciding to take services in-house, companies will be looking at the volume; is there economic scale to do it themselves? It may also be worth it if there are profitable inefficiencies, meaning – it’s very costly to do but you won’t win the race without it.”

Ultimately, the key issue appears to come down to the customer experience. A recent YouGov survey for Centiro and distribution firm JDA found that almost half of all shoppers found problems when buying goods online, with 71 per cent revealing they would be likely to switch to another retailer following bad online service.

As Ms Dickinson explained: “Big ticket items, where customers are spending large sums of money, are particularly important to get right and that is why we are seeing more and more retailers bringing the two-man delivery service in-house so they have complete control of the system.

“That’s not to say third party delivery services don’t have a part to play, especially when there are major surges like Black Friday. But with so much competition today, retailers know customers are far more likely to vote with their feet and shop elsewhere if online services aren’t exceptional.”

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