Online shopping pushing up cost-to-serve

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The rise on online shopping is pushing up retailers’ overall cost-to-serve, and will affect profits over the next 12 months unless retailers achieve decent sales growth, according to the KMPMG/Ipsos Retail Think Tank.

Mark Teale, head of retail research at CBRE, said: “Online sales growth has exacerbated profitability problems because of the inability of many retailers, particularly in grocery markets, to claw back the full cost of fulfilment from online shoppers. Margin dilution is the inescapable result of this pressure. Online has proved brilliant at capturing sales; its record as a profit generator is much less impressive.”

And Richard Lowe of Barclays, warned: “Retailers need to have a robust IT platform that will work smoothly across all channels and can withstand spikes in demand, such as Black Friday or Cyber Monday.”

The think tank argues that retailers will need to spend more in 2015, to remain competitive and catch up with consumers’ evolving shopping habits. “Evolving technology offers more opportunities to personalise and innovate services, enabling retailers to respond quickly to changing consumer shopping habits.”

Looking at the overall retail market, David McCorquodale, head of retail at KPMG, said: “2015 will see some growth, but retailers will do well to break through the two per cent barrier. There are multiple factors which could knock sales off course, including concern around the general election and an interest rate rise.

“There is undoubtedly growth coming through online sales, but this is a double edged sword. Online sales have a higher ‘cost to serve’, putting even more pressure on retailers’ margins.”

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