Royal Mail is preparing to launch the UK’s biggest ‘click and collect’ service over the next fewmonths as part of several technology-backed initiatives designed to match the increasing demands of
e-retail customers and the services offered by competitors and retailers, after “completelyrebuilding the technology capability inside the company”.CEO Moya Greene yesterday described the new click and collect offering as “a technology play”that would allow e-retailers and end customers at the point of sale to indicate online that theywant their parcel delivered to one of the 14,000 Post Office outlets for collection. The news comesas new data from IMRG and Capgemini revealed that almost one in five (19%) of UK multichannelonline sales were delivered through ‘click and collect’ in the third quarter, up from 13% theprevious year.
“Click and collect means that retailers are creating their own online offers,” Greene said. “Wehave responded and are launching what will be the largest click and collect offering in the UK, viathe Post Offices.”
After arguing that Royal Mail was in a strong position to deliver profitable growth on the backof its B2C parcel delivery capabilities, she acknowledged that it was “a very competitive marketand we cannot be complacent”.
Greene continued: “We have seen people like Amazon introducing its own delivery around its owndistribution centres and delivering Sunday services. We have got a very strong partnership withmany of the big players, including Amazon, and we are continuing to deepen that partnership. We aregetting better forecasts from the online retailers so that we are in a better position todeliver.”
But despite huge progress in the last two years, Greene admitted that she was “not happy” withRoyal Mail’s current technology capabilities and acknowledged that the company had “a lot of workto do on the technology side” to maximise parcel delivery efficiency and meet all the needs ofe-retail customers.
“One of my biggest worries is, can we stabilise this antiquated technology backbone and make itmore flexible?” she observed. One of the challenges had been to move from a situation where thecompany was relying on just two outsourced suppliers. She described the previous situation as “avery poor outsourcing”, and said the company had gone through an “extremely extensive RFP process”to diversify its risk with key suppliers.
“Two Christmases ago we were in a very bad way, where part of our online business basicallycollapsed on us. That doesn’t happen any more,” she said. “We have a great technology team comparedto where we were two years ago. We have recruited 300 top technology professionals – basically wehave had to completely rebuild the technology capability inside the company,” Greeneexplained.
“We are bringing back in-house the areas of technology that are crucially important and thatneed to be under our control – things like application development – so that we can be more nimbleand we can be faster.”
She said Royal Mail still had some way to go in terms of keeping up with the competition, butshe said that it had “made great strides” in its core network, and the company’s “emblem parcelproduct”, Special Delivery, now had a text messaging feature. “We have evolved from havingvirtually no traffic on our core network that was track and traceable to now having 20% that is,”she observed.
The company also has a project underway to upgrade the shipping tools of Parcelforce, whichalready offers track and trace services to customers. “We are going to upgrade that and then runthat upgrade across the whole core network, so we have a common technology platform,” Greeneexplained. “So we are working very hard to do that, but realistically we won’t be there for acouple of years.”
She confirmed that she still expected to make a decision on parcel sorting automation next year.“Yes we’re still on track to do that,” said Greene. “We have a very strong, dedicated team lookingat every option, learning from the experience of others in the sector.”
With UK online retail sales growing at 16% a year, Royal Mail expects the B2C and C2X segmentscombined to deliver volume growth of between 4.5% and 5.5% per cent per annum, and the B2B segmentto grow slightly above the UK GDP growth rate.
Greene said another key element of Royal Mail’s parcels strategy was to optimise its networks,“so that the parcels are in the right network; the smaller in Royal Mail, the larger inParcelforce,” she said. “We introduced size-based pricing in April 2013 to ensure that parcels aredelivered through the most appropriate UK network according to their size, value and urgency. Ourcore network is best at delivering smaller consumer goods, rather than bulkier parcels.”
She said the core network’s scale and configuration allows lower-cost delivery of these smallerparcels, which are delivered on foot. “We changed prices as part of our size-based pricing approachand anticipated that some volume would transfer to Parcelforce Worldwide from the core network,with some larger, uneconomical items exiting our networks completely.”
As expected, UK parcel volumes were broadly unchanged in the first half due to the impact of thesize- based pricing approach and a temporary slowdown the growth of e-retailing due to the goodsummer weather in the UK. In first-half results published yesterday, Royal Mail said it saw “aslightly higher rate of volume reduction than expected in the consumer, micro-SME and SME segments”. Greene said plans were progressing to expand the capabilities of Parcelforce Worldwide, which sawvolumes increase by 9%, year on year, in the six months to 30 September. Its capacity is set toexpand by around 30% over two years.
“In September, we opened the new Parcelforce Worldwide parcel processing centre in Chorley,complementing our existing centre in Coventry,” said Greene. “We have also opened 10 new,replacement or extended Parcelforce Worldwide depots around the country.”
Royal Mail’s share price rose 5% yesterday after the newly privatised company announced stronginterim financial results increasing pressure on UK Business Secretary Vince Cable from the Houseof Commons Business Select Committee, which yesterday questioned him over whether he hadunder-priced the company’s shares in last-month’s flotation of the company.
Cable said that market prices were not always rational, and said it would “be a long time beforewe can take a view”. But Mark Russell of the Shareholder Executive, which oversees UK state-ownedbusinesses, admitted that he and the government had been surprised by the size of the rise in RoyalMail shares. They are currently trading at £5.55 – 70% higher than the flotation price of£3.30.
But Moya Greene said that analysts were “probably running away a bit with themselves” over thepossibility of Royal Mail off-loading or selling and leasing back some of its property holdings.CFO Matthew Lester said yesterday that the company had no immediate plans to sell any of its majorLondon properties.
