Taking a page from Oldsmobile’s marketing genius, today’s retail economics are not anyone’s grandparents’ retail economics.
In fact, they’re not even sustainable as consumer expectations are driving new profitability metrics and retailers need to adjust or face big challenges, according to a new HRC Retail Advisory report that polled 20 specialty retailers with sales up to $16 billion.
«This is a challenging time for brick and mortar retailers as they work hard to profitably compete against digital pure-plays, while concurrently managing their brick and mortar profitability,» said Antony Karabus, CEO of HRC Retail Advisory and author of the study, in a press release. «Very high fulfillment costs, free shipping and returns, and the challenging issues of refurbishing and getting returned product into a re-saleable state and location can add a substantial two percentage points or more to a retailer’s cost structure. Retailers must take action now to address these issues, which are not economically sustainable.»
The study’s findings include the following:
- Amazon.com is continuing to increase its market share and expand into new categories in the North American retail sector.
- While online sales increased 9 percent for specialty chains and 19 percent for department stores in 2015, it represented a significant de-celeration in the most recent five-year CAGR growth of 12 percent and 29 percent respectively.
- According to Karabus, e-commerce represents true incremental sales for a retailer when additional market share is won from competitors or when e-commerce customers are in geographical areas where the particular retailer does not have a physical presence. When e-commerce is not incremental, the retailer’s cost structure is sharply increased due to high costs associated with e-commerce including the cost of free shipping and returns, price matching, maintaining e-commerce technology capabilities, the high cost of digital marketing and getting returns into saleable condition.
«The increase in e-commerce penetration rates for brick and mortar retailers is coming at a very high cost,» said Karabus, «especially in situations when most e-commerce sales are as a result of a channel shift.»
Karabus recommends retailers pay attention to five factors:
Decide which omnichannel capabilities will be most valued by your customer segment, rather than investing in all capabilities;
Prioritize important decisions such as price-matching, free shipping, free returns, how product will be fulfilled and technology to provide full inventory visibility;
Establish a methodology to better exploit data insights to drive customer-focused decisions;
Determine how to re-think and enhance real estate decisions in light of channel sales productivity issues;
Ensure store, supply chain and home office infrastructure cost is effectively sized and structured to profitably serve customers across channels and to maintain profit performance.
Source: Retail Customer Experience
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