Tesco non-food website Tesco Direct is the latest victim in Amazon’s inexorable rise in e-commerce. Come 9 July, it will close its electronic doors with the loss of 500 jobs and take Tesco out of the online general goods market. Well, sort of.
Launched in 2006 to sell clothing, electricals, homewares and toys in direct competition to Amazon and Argos, the site has failed to break even – and now Tesco is bringing down the shutters as it can’t compete on fulfilment – not profitably anyway – with Amazon.
It will continue to sell some homewares and toys through its grocery site and promises to revamp the whole Tesco.com website to help round out its product offering, but the news is still troubling as it marks yet another ‘traditional’ retailer having to retrench in the face of overwhelming online competition.
According to the company, Tesco Direct has faced a number of significant challenges, including high costs for fulfilment and online marketing, which have prevented it from delivering a sustainable offer as a standalone non-food business.
The retailer says that it remains committed to bringing a compelling range of general merchandise to its customers, both in-store and online at Tesco.com. It is aiming to create a simpler online experience for customers, allowing them to purchase general merchandise, clothing and groceries all in one place.
“We want to offer our customers the ability to buy groceries and non-food products in one place and that’s why we are focusing our investment into one online platform. This decision has been a very difficult one to make, but it is an essential step towards establishing a more sustainable non-food offer and growing our business for the future.”
– Charles Wilson, CEO of Tesco UK & ROI
Tesco began this process a little while ago and customers shopping on Tesco.com can already buy products such as toys, home and cookware. Opportunities to selectively build on this offer will be made as investment is focused on a single online platform. There are no other changes to the Tesco grocery home shopping service as a result of this announcement.
But the main problem is Amazon – it has a vast and excellently designed website, it has the stock and the fulfilment so can offer competitive price, availability and delivery. Why would anyone go anywhere else?
“If you think of buying children’s toys, gadgets, books or electrical goods, what’s the first place you think of? Probably Amazon – not the high street shops that specialise in providing these products. This is because Amazon offer an easy online ordering process, super-fast delivery, lots of choice and prices that are usually cheaper than anywhere else. This is great for your Christmas shopping, but not so great for the UK economy when we are ploughing our money into a company that sends most of its profits abroad.”
– Phoebe Griffits, KIS Finance
The recently proposed merger of Sainsbury’s and Asda is also bringing pressure to bear on the retailer. Thomas Brereton, Retail Analyst at GlobalData, believes that Tesco is using this to get itself ready for a battle royal in the UK grocery business – taking on both Sainsbury’s-Asda and Amazon.
“Supermarket giant Tesco has put its cards on the table by announcing the planned closure of its lossmaking non-food website, Tesco Direct, in an effort to streamline operations and rid it of uncompetitive product lines as it prepares to increase investment into one online platform. The recent news of Sainsbury’s and ASDA’s proposed merger would not only create a market-leading grocer, but a powerful force across markets including clothing and general merchandise – and the closure of Tesco Direct will help prepare Tesco for the competitive road ahead. However, this does provide Tesco an opportunity to “clear out the cobwebs” in certain product lines, and will particularly be looking at reducing – or eliminating – third party selling.”
– Thomas Brereton, Retail Analyst at GlobalData
Another reason why Tesco is doing this is that customer experience is set to be the next battle ground for these competing retailers and new entrants. Tesco Direct already suffered criticism that its site was slow and not so easy to use. Compared to Amazon’s slick approach it was clearly lagging.
The role, too, of personalisation of this customer experience is also increasingly important and a retrenchment to a single site and a move away from complex, third-party and own brand supplies is also likely to have been a factor.
“This is just another example of how retailers are needing to make sure that they are putting the customer experience at the forefront of their technological innovation. For retailers to survive and adapt they must embrace technology in an effective manner that facilitates the shopper’s purchasing journey. It’s not enough for retailers to invest in technology without doing so in a purposeful manner. They need to understand their customers’ needs and preferences and make sure they are doing everything to deliver that in their online and instore offering to provide consistent, convenient, user-friendly, cross channel experiences. Tesco has obviously seen a need to do this by bringing everything together under one website for their customers. It’s important that retailers learn from others’ experiences and plan for the future when they are making similar technological investment.”
– Joe Rabah, Managing Director for EMEA at RMG Networks
With Tesco Direct joining a growing list of mainstream retailers that are getting into trouble – M&S is speeding up the closure of its stores as it faces stiff competition from Amazon, Ocada, Waitrose, all other apparel retailers and more – the move to close Direct also comes down to simple economics. To compete in all the ways outlined above and to do so profitably, Tesco needed to rapidly re-evaluate its businesses to survive and to take on these challenges.
“News that Tesco is closing its (non-food) Direct website and focussing on a single internet business highlights the need for retailers to comprehensively evaluate and assess their businesses. Retailers of all sizes need to follow Tesco’s lead and adopt an effective roadmap for future profitability, and focus investment and resources into the areas which will best achieve their goals. Tesco has realised that it cannot successfully compete with the likes of Amazon and so has cut back its e-commerce costs. Many other retailers need to take stock of their digital assets and invest in improvements and upgrades to increase efficiencies before the peak trading periods of Black Friday and Christmas arrive.”
– Terry Hunter, UK Managing Director, Astound Commerce