Omnichannel Retail: Consumer Experience Survey. January kpmg.co.uk

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1 Omnichannel Retail: Consumer Experience Survey January 2015 kpmg.co.uk

2 2 KPMG Omnichannel Retail Survey 2015 Introduction Several large retailers have experienced issues with service and delivery during Christmas 2014, from website crashes to third party logistics failure, impacting their brand and causing many consumers to choose competitors or abandon online shopping altogether. We are seeing a rise in expectations for same-day delivery or collection at store, a personalised shopping experience, order tracking, a pain-free returns process and of course, on-time service. We have surveyed 58 retailers over the Christmas period to analyse: Online user interaction, personalisation and experience Product information, discounts and availability Delivery options and use of tracking systems Returns process and time to refund Our findings show that there are opportunities to improve: User personalisation and interaction Product information and social interaction Delivery methods and peak strategy Delivery estimates and stock reporting Returns processing The UK experienced the most significant Black Friday yet and our testing didn t set out to cover that. However, with some of the issues arising because of Black Friday, we suspect there was some caution around fulfilment after it. Failing to ensure that both front-end technology and back-end fulfilment infrastructure is suitable for peak periods can be catastrophic for omnichannel retailers. Omnichannel retailers must invest in user experience, personalisation and reliability as well as planning the logistics solutions and strategy required to provide the service for today s online consumers. David McCorquodale Partner, Head of Retail

3 KPMG Omnichannel Retail Survey Survey methodology Following last year s survey, which concentrated on the interaction between a consumer and the retail website, this year we have also carried out the purchase and returns process in order to assess the full end-to-end user experience. We have carried out a focused survey with 58 retailers across a range of categories: Fashion Multi-retailer/ Department store Homewares Greetings/Stationery Specialist/Other Food/Drink Technology Health/Wellness/Beauty Average item value: The survey participants were asked to spend six weeks interacting with the retailers as if it was a genuine Christmas purchase and provided feedback on the following stages of the shopping experience: 1. Searching for items how easy was it to find the item at the specific retailer and were you required to provide feedback on reaching the site? 2. Registering for an account how much information was requested and what was the level of personalised marketing? 3. Browsing what information was provided and did the product s price change after one week in your basket? 4. Purchasing the item what delivery options were available? 5. Delivery could you track your order and was it delivered on time? 6. Returns how could you return your item and how quickly did you receive your money back? Week 1/Search: Search for the items Week 2/Register: Register for an account Week 3/Browse: Use the site to add items to your basket Week 4/Purchase: Go through the order process Week 5/Delivery: Experience the delivery process Christmas Week 6/Returns: Return the items

4 4 KPMG Omnichannel Retail Survey 2015 User personalisation has not improved since last Christmas and remains an area of significant opportunity In the online world, consumer experience is as important as product and price. You can have great products and discounted pricing, but if they can t find what they are looking for quickly or they don t get that personalised shopping experience, they are likely to switch over to your competing brand immediately. A recent IBM Institute for Business Value study shows 81% of consumers expect same brand experience across channels and 54% of consumers would end their relationship with a retailer if not given personalised content. IBM Insights on Business: The Power of Insight: Delivering on Brand Promise, 2014 The opportunity for personalisation remains KPMG s Online Retail Personalisation Survey, circulated in 2014, concluded that the majority of retailers were failing to utilise consumer information in order to maintain contact and offer a personalised experience 1. This year we have investigated similar themes and have discovered that there has been little improvement in this regard only 19% of sampled retailers requested user registration upon visiting the site. Easy to register, but limited interaction The only required piece of information to set up an account, across all websites sampled, was an address, with less than 35% asking for address details. Nearly 95% of our sampled websites did not request payment details on registration. Generally our participants found the registration process very easy, suggesting that requesting more information could provide the data to enable a more personal experience for the user, without having a negative impact on their use of the site. KPMG experience: Customer experience analytics KPMG has worked with retail clients to create customer experience eco-systems, by developing Big Data and Analytics roadmaps to help the organisations become customer-centric, using data to drive decision making. communication following registration was lower than expected, with less than half receiving an during the week after signing up to the site. 9% of surveyed retailers provided personalised communication. All of our survey respondents actively asked for marketing content. It is important for retailers to be cautious here a consumer does not normally want to be marketed with items they have already puchased. Recommended products are well implemented One area of success is the use of recommended products, which were deemed to be relevant in the majority of cases, with 83% of survey respondents offered other products, and 79% of these deemed to be relevant to their purchase. Combining different data sources such as transactions data, environmental data, credit card data and on-line data provides a clearer picture of optimal customer experience. KPMG also has experience in web and app design, acquiring Cynergy and working with the Chelsea App Factory. 1 KPMG Online Retail: Personalisation survey February 2014

5 KPMG Omnichannel Retail Survey All retailers: Registration information requested All retailers allowed account registration via address. 19% of sites requested registration when visiting their homepage Registration Info: Name in% 89 Registration Info: Address in% 65 Registration Info: Age in% 72 No Registration Info: Sex in% 81 No Registration Info: Payment in% 94 No Registration Info: Other in% 56 All sites requested an address on registration Unexpectedly, this result is similar when analysing the fashion category, with almost 80% of surveyed sites not asking for gender The most common piece of other information requested was a contact telephone number On a scale of 1-5 how difficult was the registration process? (1 = simple, 5 = very difficult) Our participants found the registration process very easy at the majority of retailers. personalised 9% 45% ed 79% asked for sign-up 91% 79% of our participants were asked to sign up to regular communications, with only 45% of all participants receiving any s during the first week after registration. 9% of our participants received personalised communication, a theme explored last year and still a key area of opportunity. How many other items were suggested to you when adding the item? Count (Retailer) Number of items suggested 83% 83% of our participants were suggested other items when they added to their basket. This was most commonly 3 or 4 items, however in one case was 28 different items. Of these recommended items 79% were deemed to be relevant.

6 6 KPMG Omnichannel Retail Survey 2015 Product information is improving, but a lack of inventory or the ability to see current stock status could frustrate the consumer Black Friday has been a disaster, says Nick Bubb It has caused a huge pull forward of sales; it weakened Christmas full-price sales and it ruined perceptions of delivery reliability. Financial Times: Retailers rue Black Friday discount binge, 2015 Information is good, but there are opportunities to increase use of media and social engagement Our survey respondents were able to find the desired retailer within the top 5 hits on Google for over 60% of the items. Product information is key to the buying decision and every item purchased had a photograph, with 93% including a description. Size and colour variants and guides were also fairly common. However, we found over 40% did not have any customer reviews, although this was an improvement from last year. 2% of our products had accompanying videos, which was surprising considering retailers ability to show the item from a range of angles particularly for the fashion sector where the challenge for retailers is to overcome the lack of ability to physically examine the product. Consumers left in the dark over stock availability Our survey has highlighted the deficiencies in stock reporting, with less than 35% of retailers including stock information for the product on their website. When this information was queried with customer services, 15% were told that this information did not match central systems. It is important to invest in back-end systems that are able to react quickly at peak times and remain in sync with the front-end website to avoid service issues and consumer disappointment. Low levels of Christmas discounts can keep margins high During the Christmas period we would traditionally expect retailers to try to maximise profits by selling at full price. 10% reported a price change in their item one week after adding to their basket, which if discounted, will please consumers if they have not purchased the product, but frustrate those who realise they could have waited to receive a more competitive price. We believe that future Black Friday discounting could be minimised in order to preserve stock for Christmas and to reduce the strain on retailers operations. This is especially relevant for the fashion sector, where many goods may continue to be purchased for full price if not discounted. Fat Face is one example of a success story this year, increasing online sales by avoiding Black Friday. An opportunity: Cloud in the supply chain Cloud based software can increase the speed of data transfer across the supply chain. These solutions have allowed retailers to link POS transactions to inventory reports, updating the systems in minutes. The implementation process may include the preparation of internal processes, organisational re-structuring (as required) and education on how to get the most out of this new level of information sharing.

7 KPMG Omnichannel Retail Survey Searching through Google for the item, what number hit was the retailer? Did the site provide you with stock information? (No stock, low stock) Mismatches of information can frustrate customers if it leaves them unable to purchase, and can have an negative impact internally on the retailer s forecasting, replenishment and financial reporting. 10+: 33% 1: 45% 66% NO Information provided per item If yes ring customer service, does their stock information match? 85% YES Has the price of the item changed? : 10% 80 Percent No: 90% Product photos Product description Colour variants Size guide Size variants Customer reviews Product videos There is opportunity for retailers to increase the information provided with more variety in media such as using videos and increasing social engagement with product reviews. 10% of our participants found their item had changed price 1 week after placing it in their basket.

8 8 KPMG Omnichannel Retail Survey 2015 Consumers are offered a range of delivery options, but it is important to choose the correct fulfilment strategy at peak times City Link s failure takes capacity out of an overcrowded market, but providers are building new hubs. Retailers are steering online customers towards Click & Collect, increasing delivery efficiency to stores. Financial Times: City Link collapse reveals sector s systemic problems, 2015 The rise in popularity of Click & Collect Click & Collect is fast becoming the consumer s desired delivery option as they seek to avoid uncertainty around waiting for their purchases to arrive. With the news of failed deliveries from major retailers, many consumers opted to Click & Collect instead of using traditional methods this Christmas, even at those unaffected by the issues. The consumer wants to purchase an item online, then go and pick it up at their leisure, which means the omnichannel experience has to be stressfree and effective. Click & Collect was the second most offered service in our survey, with 60% of retailers providing the option. Next-Day delivery is the most common service offered Next-Day delivery was the most common offering across the retailers surveyed, with around 70% of retailers offering the service. It is clear and expected that consumers are paying an increased price to ensure a shorter delivery period, however 12% of retailers were willing to provide Next-Day services for 5 or less. 76% of those surveyed were willing to offer free delivery depending on basket value. This tended to be irrespective of the number of items purchased. Most retailers require more than 30 spend before they offer free delivery. Are retailers removing services to cope with peak? Very few retailers offered same-day delivery, at just over 5%, potentially a reaction to increased Christmas demand, and a wise decision to turn off the service if at risk of displeasing customers if distribution capacity is reached and orders are left unfulfilled. Same day delivery is highly dependent on three things: accurate stock information, stock close to the customer and agile 3rd party couriers or transport solutions which also explains why the number of retailers offering the service is low. 15% of retailers allowed the user to choose a delivery slot, with very few given the option of a smaller time window than a full day potentially indicating a reaction to peak demand. It is important for retailers to consider how their supply chain operates and whether a shift in the method of fulfilment has any consequences on this operation. If supplying retail stores with Click & Collect orders from a central DC a retailer must assess not only whether they are equipped to both pick and pack the orders if the item is not on store premises, but also whether the store will have the capacity to receive and hold the additional items. An opportunity: Cost-to-serve and supply chain analytics Retailers can determine the product and channel Cost-toserve analysing operational and financial data to provide insights into the true cost of fulfilment. This cost and performance data can be used to recommend fulfilment process improvements, for example by adjusting the pricing model for delivery options or by reconfiguring inefficient processes at distribution centres such as packing and scanning.

9 KPMG Omnichannel Retail Survey What delivery options are on offer? At what cost? Were you offered a delivery slot for this delivery? Click & Collect 5+ day Standard class 3-5 day 15% First class Specific day Next day Same day 80% 60% 40% 20% 0% % of retailers Cost for delivery 85% No Was free delivery offered? If so, what spend did this depend on? 24% 14% 8% 17% 30% No free delivery offered Free delivery was offered at over 75% of sampled retailers. Delivery slot (full day) 67% 15% of the participants were offered a delivery slot when selecting their delivery options. Of these the majority were only offered a full day. Delivery slot (morning/afternoon) 22% Delivery slot (1-2 hours) 22% 7% 100+

10 10 KPMG Omnichannel Retail Survey 2015 Whilst delivery tracking is detailed when offered, providing estimated delivery dates and requesting confirmation are areas of opportunity Marks and Spencer said problems at its distribution centre were the result of challenges in calibrating automated sorting and packing systems for the mix of goods customers purchased. Financial Times: M&S misses Christmas forecasts after delivery and weather blows, 2015 Delivery success for over 90% of our survey respondents Our survey included 9% late deliveries, a 91% success rate. There have been some high profile issues with third party providers and front end websites affecting some retailers this Christmas. Our data highlights that whilst detailed tracking is available, there is opportunity to provide an estimated delivery date and request confirmation from the consumer. Detailed tracking and imminent delivery notifications Over 40% of our orders were not provided with a specific delivery date, however where delivery tracking was available (77% of purchases) this rises significantly to 73%. Data available was detailed, with the majority provided with updates to either process stage or location. 76% of those surveyed received an imminent delivery notification. Most imminent delivery notifications were provided by , with 39% receiving both a text message and an . Interestingly, no one was called by a distribution provider immediately before delivery to check if they were able to receive their package. Improving the service may help the brand The experience of waiting for a delivery is increasingly one which consumers are looking to avoid, with reports of some city workers hiring third parties to collect on their behalf. Therefore the ability to provide detailed updates and a delivery window of less than one day (with 72% of our sample not providing information more detailed than this) is preferable. Less than 9% of retailers surveyed asked the consumer to confirm the delivery slot provided. By considering the amount of information and communication available to consumers in terms of delivery tracking and prioritising the most important elements, brands may be able to reduce the negative effects of unexpected peaks and missed deliveries. KPMG experience: Home fulfilment assessment KPMG is able to rapidly assess the home fulfilment operation and identify key stages in the process where improvements could be made. This can include recommending scheduling systems to merge the store and online delivery channels. KPMG is also able to analyse fulfilment networks and carry out 3PL and courier contract reviews to help retailers develop their fulfilment offering.

11 KPMG Omnichannel Retail Survey Tracking available: Were you able to track your item? Was this through the retailer s website or 3rd party? Notifications of imminent delivery: 24% Retailer The majority of order tracking was carried out via Third Party solutions 76% of retailers provided notification of imminent delivery. 78% 76% 3rd party Was an estimated delivery date provided (all retailers)? Received Received text: Confirmed slot size Number of retailers minutes 1-2 hours Tracking detail: Stage of process 2-4 hours Half day Less than 9% were asked to confirm the delivery slot. Full day Tracking detail: Delivery date N/A Tracking detail: Location 9% No 91% 57% 43% No Meet delivery slot? Almost 9% of our items missed their original delivery slot 43% of retailers did not provide an estimated delivery date. 85% 39% 55% No of consumers receiving imminent notifications received an and a text 82% 73% 62% When analysing tracking services, the majority of retailers or third parties provided detailed information. No calls were received from delivery providers to advise of imminent delivery

12 12 KPMG Omnichannel Retail Survey 2015 Returns can be a lengthy process and inconvenient for the consumer The returns process is the final touch point and if consumer perception is that they have been treated badly, it can damage the brand beyond all recognition. Tony Mannix, chief executive at Clipper Logistics, Drapers Roundtable: Managing returns, % not refunded within two weeks Whilst over three quarters of our sampled returns were free of charge to send, over 40% were not processed within two weeks. Today s consumer is looking for a frictionless experience and whilst some retailers excel in this regard there is clearly room for improvement. The complexity of paperwork and the process was found to be low, with less than 10% rating the process as complex ; a success. The majority of sampled businesses offered a postal return service, with only 20% not providing this option. Technology and homeware retailers were the only categories to not offer this, but this is understandable due to the typically higher weight and value of their products, as well as their fragile or breakable nature. In-store returns not always offered by retailers with physical stores We would recommend that high street stores and retailers with physical locations offer in-store returns to increase consumer options and footfall into their business, but 24% of fashion retailers with physical stores did not offer this service. All health and beauty, homewares, department stores and technology retailers surveyed offered in-store returns. There is renewed focus within the industry on returns and improving the consumer experience, as well as to reduce working capital that is tied up in unwanted items. Doddle has set up a pilot store with one of the largest changing rooms in the UK to allow customers to try their garments and return them instantly. My handbag was referred to as a pair of shoes! We received anecdotal responses complaining of no refund of postage costs, poor customer service via telephone call centres and an automated response was received detailing the returns process for a pair of shoes when the item was a handbag an example of poor personalisation. KPMG experience: Returns process improvement KPMG has worked with its clients to provide recommendations on the optimisation of the returns process. This may involve outsourcing the operation to a third party, or analysing the cost impact of providing certain services for the consumer, such as Collect+ or return to store. 1

13 KPMG Omnichannel Retail Survey How difficult was the returns process? Time to complete returns process How much did it cost to return your item? Number of responses Difficulty (1: very easy, 5: very complex) Average recommendation score (0-10) Number of retailers Days to complete < 4 < 5 Over 75% of our returns were free of charge. < 9 < 10 < 8 < 6 Whilst most of the returns were simple to carry out, a difficult process could be linked to poor user experience and negative feedback. 40% of our returns took more than two weeks to process. < 3 < 2 How was the availability of collection points? Assessing retailers with physical stores it is surprising that almost 25% of fashion retailers sampled do not offer in-store returns Available/No in-store collection in %100 Health/ wellness/ beauty In-store returns available No in-store returns Multiretailer/ other Technology Specials/ department store Fashion Food/ drink 3 Return methods Available/No in-store collection in % Fashion Number of return methods provided The majority of retailers sampled provide more than 1 method of return. Postal returns 56% of fashion retailers use Collect+ versus 80% of Department stores. Food/ drink Collect+ Greetings/ stationery In-store Health/ wellness/ beauty Homewares Homewares Multi-retailer/ department store free: 76% Specials/ other Technology

14 14 KPMG Omnichannel Retail Survey 2015 Conclusion To succeed in omnichannel you must have a really good front end, but unless you have re-engineered the back end and are ready to cope with peaks in traffic you ll have real issues. There s no point doing one without the other. Paul Coby, IT director at John Lewis, speaking at NRF January 2015 Thoughts for 2015: KPMG believes that in order to prepare for peak 2015 retailers need to build on the success in terms of product accessibility and information, delivering offerings to the consumer and detailed tracking facilities by leveraging the data they have available to them, to personalise the consumer s experience; to further improve product information and use of alternative media and social content; to increase the agility in the supply chain to react to consumer demand, whilst maintaining a high level of visibility to the customer allowing them to predict the delivery schedule, focusing on providing Click & Collect services and accurate estimated delivery dates. Finally we would recommend the returns process is optimised to enable swift payment back to the customer, reducing negative feelings and positively impacting brand loyalty, promoting further sales in the future. Consumers are looking for frictionless shopping experience between the channels removing friction from every point of the purchasing journey. Increase personalisation The results of this year s survey suggest that the Online Retail industry is still adapting to a period of rapid change. The way retailers interact with consumers is expected to become increasingly personalised, to the point that consumers expect a personalised service or they may go elsewhere. Our data suggests that this is still a hurdle many retailers have to cross, with 9% of communication addressing the individual consumer. Offer a range of delivery services, including same-day and Click & Collect, but be wary of failing to meet peak requirements We have seen the development of fulfilment services, and the rise of Click & Collect becoming the second most popular delivery offering made to customers. The driver for this: the consumers wanting predictable and reliable delivery but at a time that is convenient for them they want to browse, select and order online but then drive to store, get it and get on with their lives. The lack of same-day delivery services at peak suggests that many retailers have decided against making promises they may not be able to keep at busy times. Focus on the basics of delivery and stock reporting A large number of retailers surveyed did not provide an estimated delivery dates or basic stock reporting for the products that were ordered, but will generally give the consumer visibility to very detailed information if tracking is available. This is an area which we recommend is given attention in terms of reinforcing the basics of whether an item is in stock and when to expect it to be delivered. Of course, improving stock visibility will also lead to improvements across the end-to-end operation it is key for inventory and fulfilment management. Improve the speed of the returns process and enable store returns Further to last year s survey, we have looked at the returns process. Whilst this is not seen as a complex process by our participants, the time it has taken has led to negative feelings among some, especially in cases where communication from the retailer has been poor or non-existent.

15 KPMG Omnichannel Retail Survey of retailers sent personalised s. Information is being collected by most retailers (90%) however of all the retailers sampled, only 9% are using this information to tailor the s that are sent to customers. 43% were not provided with an estimated delivery date, but where tracking was available (77% of retailers), there was an increase to 73%. 9% of participants were asked to confirm that they were available to accept delivery. 76% of consumers received imminent delivery notification by text and . Even with these notifications there was an 8% delivery failure rate. Retailers can expect significant additional cost for every failed delivery. Consumers are reacting to this by preferring to Click & Collect in-store rather than rely on a delivery service. A pain-free omnichannel experience is key for the consumer. of retailers polled did not provide stock information on the product page. Of the 34% that did, 15% of the information provided did not match that provided by customer service. of returns took more than 2 weeks to process from customer submission to money back. A difficult returns process can have a negative impact on customer engagement and brand loyalty.

16 Contact us If you would like to discuss any of the issues raised then please contact our team below: David McCorquodale Partner, Head of Retail Andrew Underwood UK Supply Chain Lead Partner Nick Viles Director, Customer & Growth Digital transformation and user experience James Tilley Director, Supply Chain Cost-to- Serve and Supply Chain Analytics Iain Prince Director, Supply Chain Retail logistics Nick Whitfeld Director, Business Intelligence Master data management Fiona Forster Senior Manager Consumer and Industrial Markets The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. The KPMG name, logo and cutting through complexity are registered trademarks or trademarks of KPMG International. OLIVER for KPMG OM032936A January 2015