John Lewis' New Fee Adds a Hurdle to Cross-Channel Commerce

Most merchants are trying to eliminate the barriers between their online and physical storefronts, yet the U.K. retailer John Lewis has put a small but meaningful barrier between these two channels.

The company slapped a £2 (about $3.12 U.S.) charge on all e-commerce orders under £30 when shoppers ask to pick up the item in a store. This goes against the trend of making so-called Click & Collect purchases free of additional charges, though it could help the retailer recoup payment-processing costs for small-ticket items (or discourage those purchases altogether).

"We are sure customers will understand why we are doing this. There is a huge logistical operation behind this system and, quite frankly, it's unsustainable," Andy Street, the John Lewis managing director, told The Guardian. "We consider ourselves to be leaders and we want to take the lead on this."

But even if most purchases don't qualify for the fee, it creates a mental hurdle that could take away one of the key advantages retailers have over online-only competitors such as Amazon.com; the fact that an order can be placed with one click and then picked up on the walk home from work is a key merged channel strategy.

Another key potential is upsell opportunity. Once inside the store to make that free pickup, shoppers are likely to make additional purchases that outweigh the £2 cost that John Lewis aims to recoup. And of course interchange is a factor. The actual cost of handling a card payment varies widely based on a retailer's sales volume and negotiating power, it is a non-trivial consideration on all small purchases, including those under the £30 threshold. Generally, it's even more of a concern for sub-$10 purchases because the merchant pays a flat fee in addition to a percentage of the sale amount.

Distribution costs are likely low for a company like John Lewis, since it already ships items to its stores on a regular basis; even a $2 item would not add significant costs if it is bundled with a shipment that is already planned. This is unlike e-commerce, where each shipment goes to a different home address and thus a threshold for free shipping addresses a steeper cost for the merchant.

But another solution to the issue of card-acceptance costs is to promote the use of alternative payment methods. First Data's Gyft, for example, offers more rewards to consumers who pay with Bitcoin or PayPal than those who use credit cards. In the U.K., Barclays' P2P app Pingit is another alternative payment option.

John Lewis declined to make an executive available for an interview, though the company confirmed the accuracy of the quotes in The Guardian's article.