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High fulfillment cost forces hand of John Lewis

03 July 2015

High logistics cost prompts Omni-channel retail leader to start charging for its Click & Collect service.

John Lewis has announced it will charge £2 for Click & Collect on orders of less than £30. The charge will apply in roughly 18% of the retailer’s online orders. 

John Lewis MD Andy Street says free Click & Collect across the board is unsustainable due to significant logistics costs. He referred to the collapse of City Link as evidence that retailers and couriers had to look hard at their costs.

You can read more about the reasons behind the demise of City Link here. Its former CEO David Smith revealed one of its large contracts was very loss-making - "in rough terms, for every parcel we were delivering we were losing about £1”.

While Click & Collect was acknowledged by John Lewis to have saved internet deliveries at February’s Meta Pack Delivery Conference, the retailer also said that further innovation was needed.

Operations director Dino Rocos said at the time: "If Click & Collect had not materialised, we would have burst the carrier network several years ago.

"Click & Collect has given us a respite, but there needs to be further innovation. We have had people shop 11 different times with us in a day. This is a valuable customer but difficult to support. We would rather it was one visit with 11 purchases.”

John Lewis says it wants to take a leadership position, which can be read as an acknowledgement that it has left itself open to competition from retailers and couriers who are prepared to operate at a loss to gain market share.

John Lewis looks to have calculated that the risk of running a high cost model indefinitely is greater.

It does, however, also suggest that the add-on benefit of Click & Collect, that it would deliver greater footfall to stores and additional sales, has not occurred on a significant enough scale to offset escalating logistics costs.

Industry reaction is sympathetic to John Lewis.

Roger Sumner-Rivers, founder of ParcelHero, said: "I think this move shows the realities of the market. For orders under a certain value it's simply not economical or viable to offer the service for free.

"Already leading internet companies such as Amazon have moved away from free deliveries under a certain amount. Even though John Lewis and Waitrose's Click & Collect deliveries are going straight into stores, eliminating the 'final mile', there are still transport and distribution centre costs to be covered.”

Andy Mulcahy, editor, IMRG added: "Click & Collect has proven to be a very popular option with shoppers - our data shows that Click & Collect among multichannel retailers grew from 4% of orders in 2010 to 17.7% in 2014.

"It is possible that this growth has been a key factor contributing to a general decline in average basket values we have recorded recently - during the first quarter of 2015 for example it was £77, compared with £80 in the same period in 2014 - as Click & Collect options often do not require basket values to be above a certain threshold in order to qualify for free delivery.”