Operating a website is expensive--not only because programmers are expensive, but because margins are smaller.
For 10 years, Bridge has encouraged stores to beef up spending in preparation for the e-commerce boom. It's easier to spend a little each year over many years than spend money in a panic. Money spent in haste often results in waste. As a reference, when traditional retailers tried to catch Amazon, they often failed in their scramble. Please recall Macy's buying the failure Story or Walmart buying the dud Bonobos.
RetailDive shares how expensive e-commerce is.
- On a hypothetical $100 sweater, the hit on margin is $8 for a return via shipping back to a distribution center, versus $2 for returning to a store, according to AlixPartners estimates.
- "That's where the omnichannel idea really has favored the people with stores, because stores can be a good place to take returns," Hart said. "It's very economical to take a return in the store..."
- Target is planning another $4 billion investment in its business that includes beefing up its online fulfillment capabilities even more.
- "People who think they can close stores and exit geographies … are underestimating the halo effect of stores," Hart said.
The chart shows operating margin for a sweater. Operating margin is profit a company makes on a dollar of sales. The greatest profit is shipping an item from a warehouse. The second highest is in-store. Sadly, shipping from the store is the least profitable.
The article and the study mentioned don’t take into account brand D2C sales. Brands with physical stores seems to have the best of both worlds in that to start they have larger margins, warehouses, and stores to accept returns. The operating margin for a brand is greater across the board for the examples shown for the sweater.
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