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Retail profitability under fire from lack of omnichannel capability


Operational silos continue to hamper profitability and omnichannel progress, according to a survey which found 75% of retail and consumer goods CEOs admit they are still running their store and online functions separately.
According to the third annual JDA/PwC global survey of more than 300 CEOs (CEO Viewpoint 2016: The Journey to Profitable Omni-Channel Commerce) there is a clear gap opening up, particularly in terms of confidence, between those organisations that are eliminating silos and those that continue to run their online operations separately from their stores.

Companies without operational silos expressed greater confidence in revenue growth (59% vs. 48% average for all CEOs) and profit growth (63% vs. 43%) than their peers. Doing away with silos can lead to efficiency gains, better customer-facing activity, which can – in turn – give retailers a competitive advantage.JDA silos

But the picture is not entirely rosy, with many respondents to the JDA/PwC survey citing rising fulfillment costs as a threat to profitability, with 68% saying omnichannel fulfillment costs are increasing.

Asked to break down their single highest omnichannel fulfillment cost respondents said …

  • 69% – shipping directly to consumers
  • 63% – said processing returns
  • 59% – click-and-collect from store

According to the 2016 IRUK Top500 report, published by eDelivery’s colleagues at InternetRetailing, 63% of retailers offer next-day home delivery, making it the most commonly offered delivery method. The standard charge for home delivery was found to be £4.30. Click-and-collect has all but caught up with home delivery, as it is now offered by 58% of retailers.

As difficult as balancing the costs of home delivery, returns, and click-and-collect may be, the simple truth is these are now the new normal, and those retailers that cannot control their costs face an ongoing and painful challenge.

According to the JDA/PwC report, retail CEOs plan to offset rising fulfillment costs in the following ways:

  • Raise the minimum order value for free home delivery (39%)
  • Raise the minimum order value for free click-and-collect services (31%)
  • Increase the cost for home delivery (29%)
JDA changes

But with delivery fees an important part of the purchase decisions made by shoppers, increasing those charges will not be without risk.

“Fulfilling omnichannel demand profitably remains a huge challenge for retailers. 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, said Lee Gill, group vice president, global retail strategy, JDA.

“To now ask consumers to pay for click-and-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.”

JDA investments

JDA also found that retailers who wish to compete in global markets must offer a wider range of fulfillment options. Over the next 12 months:

  • 60% of retailers in emerging markets are offering or plan to offer in-store click-and-collect services
  • 46% of retailers in emerging markets are offering or plan to offer click-and-collect services in commuter travel hubs
  • 42% of retailers in emerging markets are offering or plan to offer click-and-collect services via third-party retailers

Survey Methodology

PwC conducted this research in late 2015 with 305 responses from executives across China, Germany, Mexico, United Kingdom and United States. Twenty-three per cent of responses came from top 250 retailers (> $5 billion revenue), with another 51 percent classified as top 1,000 retailers. Respondents identified themselves as coming from hard goods, soft goods, CPG, ecommerce and grocery verticals, as well as from related retail and consumer goods sectors.

JDA methodolgy

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