Multichannel retailers have the advantage of capturing sales wherever their customer may be. But operating an e-commerce business and a brick-and-mortar business while ensuring the two are integrated requires additional investments. With limited resources—and in most cases these days, less consumer spending on apparel—retailers must focus on the most profitable channels.
A recent CNBC article serves as a cautionary tale for retailers that might be unwittingly chasing topline sales to the detriment of the bottom line.
A prime example could be buy online, pick up in store (BOPIS), the recent darling of the omnichannel world. In nearly every venue lately—financial calls, presentations and articles—retail executives have announced the ways in which they’re transforming their processes and/or stores to better facilitate these sales. For most, these efforts come after a holiday season which solidified their belief in the service as a way to tie online to offline and boost footfall in stores. But the findings in the article, which were provided by AlixPartners, seems to raise the question of whether prioritizing this type of transaction is wise.
The retail consulting firm crunched the numbers and found that stores can expect about a 23 percent profit margin from BOPIS vs 32 percent for in-store purchases. Their results were based on the additional online and offline costs associated with facilitating these sales.
Another popular strategy retailers are pursuing is leveraging physical stores as distribution centers. The idea is that these locations can help close the gap on last mile deliveries. Maybe, but again AlixPartners’ numbers suggest this thinking may be misleading. According to the article, this is actually the least profitable way to close a sale. Having the item shipped twice—to the store and then to the customer—added to the manpower of picking and packing the goods in store results in a measly 12 percent profit margin.
But e-commerce isn’t going away and accommodating the consumer is important, so what’s a retailer to do? Pete Madden, a director at AlixPartner, outlined ways in which stores can lower the costs associated with operating an e-commerce business. Chief among is suggestions were increasing minimums on free shipping eligibility or incentivizing in-store returns, which can cost up to six times less than online returns.
The article also makes it clear that the actual numbers for each chain will vary and stores must weigh the costs and benefits for their operations. By example, it points out ways in which J.C. Penney defies the model outlined in the piece. For instance, the department store allows consumers to pick up online orders in store but those goods arrive on Penney’s usual weekly deliveries so the company doesn’t incur additional costs. The retailer also says the added benefit is a third of shoppers who stop in to get an online order end up spending an additional $50.
Whether the numbers in the article correlate to a particular retailer exactly is less important than prompting executives to stop and scrutinize the numbers for all paths along the consumer journey to make sure they’re promoting and focusing on the ones that will ultimately prove most profitable.