Traders rethinking cheap fulfilment strategies in the quest for profitability
The costs of omnichannel fulfilment are likely to mean a significant minority of retailers will raise their minimum order value or hike the cost of home delivery, a new study suggests.
PwC questioned more than 300 retailers in five markets including the UK for the JDA/PwC CEO Viewpoint 2016: The Journey to Profitable Omni-Channel Commerce
. It found that 68% say their costs for omnichannel fulfilment are increasing, while 75% say they still run their store and online operations separately.
The highest costs came, according to 69% of CEOs questioned, when shipping directly to shoppers from a distribution centre, followed by processing returns (63%) and sending to the store as part of a click and collect service (59%).
As a result of the increasing costs, 39% said they planned to raise the minimum order value for free home delivery, while 31% would do the same for free click & collect, and 29% would increase the cost of home delivery.
JDA suggests raising costs, especially in click and collect, could be problematic. “Fulfilling omnichannel demand profitably remains a huge challenge for retailers," said Lee Gill, group vice president, global retail strategy, JDA
. "As online continues its double digit rate of growth, and takes a greater share of a retailer’s overall sales, the resulting margin erosion from the additional costs associated with fulfilling customer orders, could have an adverse effect on profitability.
"As retailers have embraced offering consumers less costly alternatives to home deliveries, free Click & Collect has grown in popularity. To now ask consumers to pay for Click & Collect certainly has its risks. What is clear is that profitability has to be addressed as a matter of priority. This will require both an investment in the supply chain and technology, as retailers seek a low cost fulfillment model that also delivers exemplary customer service. Amazon has led the way and this it is set to be the key battleground for retailers in the next five years.”