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Logistics costs hinder omnichannel services
BII
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Retailers have been struggling to implement omnichannel strategies, with only 10% of retail CEOs saying they are able to make a profit while fulfilling omnichannel demand, according to a recent PwC and JDA Software survey.
Despite delivering important benefits, like higher sales, omnichannel services are proving challenging for retailers because of costs related to logistics and returns.
Omnichannel services that merge online and offline operations are becoming more popular with retailers trying to increase online sales, while also keeping their brick-and-mortar locations relevant. For example, 51% of the CEOs surveyed said their company plans to allow customers to buy online and pick up in-store in 2017, up from 47% last year. Omnichannel shoppers who engage with retailers through online and offline channels spend 4% more, on average, every time they visit a brick-and-mortar store, and spend 10% more when shopping online, according to a Harvard Business Review survey.
However, retailers are facing ballooning logistics and inventory costs related to omnichannel services:
75% of respondents to the PwC and JDA survey said their online operating costs are increasing because of costs related to omnichannel returns. Moreover, only 23% said customer returns were not eroding profits. Returns are a particularly thorny problem because customers expect retailers to provide free returns, which can reduce retailers’ profits by 10-20% per year.
Additionally, retailers seem to be struggling to match inventory across different channels, an important aspect of omnichannel services. Among the survey’s respondents, 25% reported rising out-of-stocks as a growing supply chain issue, while 15% noted problems with fulfillment mistakes, and 13% cited inventory accuracy issues. All of these issues can be exacerbated when trying to manage inventory and deliveries across multiple sales channels.
Retailers need to refine their logistics and inventory operations in order to make their omnichannel services profitable. Successfully bringing down the cost of omnichannel operations will require retailers do a better job of aggregating data on customer orders and logistics tracking for analysis. That can provide retailers with insights on how they can better manage inventory across online and offline channels, and also help them find ways to leverage their existing store locations and warehouses to cut costs on returns.
E-commerce has been on the rise in the last several years, thanks in large part to titans in the industry such as Amazon and Alibaba. E-commerce will truly become the future of retail, as nearly all of the growth in the retail sector now takes place in the digital space.
BI Intelligence, Business Insider's premium research service, estimates that U.S. consumers spent $385 billion online in 2016. Moreover, BI Intelligence predicts that number will grow to $632 billion in 2020.
This is hardly surprising considering e-commerce's healthy growth. Though the U.S. retail average growth rate in the first half of 2016 was just 2% for total retail, it was 16% for e-commerce.
The number of online shoppers has grown by nearly 20 million from 2015 to 2016. And these 224 million shoppers are spending more, as the total amount spent online grew from $61 billion in the first quarter of 2015 to $68 billion in Q1 2016. Finally, these customers are transacting more frequently, as the number of online transactions has risen by 115 million from 2015 to 2016.
But all of this shopping online creates its own set of challenges, both for consumers and the companies that are trying to get their products onto shoppers' screens and into their shopping carts. In short, you need a plan.
And to create your ultimate e-commerce battle plan, you need the right intel.
BI Intelligence is here to help.
Our team of industry experts has you covered on topics such as:
Shopping cart abandonment
Marketing effectiveness
Merchandise returns
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Mobile payments
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