The high cost of fulfilling online orders is eroding margins, retailers across the UK have warned.
It comes after research published this week found fewer than one in five retailers around the world is able to operate an omnichannel business model profitably.
Accountancy firm PwC surveyed 410 global retailers on behalf of US software firm JDA, 69 of which are based in the UK. Two-thirds of respondents said the cost incurred from selling across multiple channels was growing.
The biggest costs come from handling returns from online and store orders, according to 71% of respondents, followed by shipping directly to the customer (67%) and shipping to the store for customer pick-up (59%).
UK retailers told Drapers the costs of fulfilling online orders are often prohibitively high, particularly – but not exclusively – for small or new businesses.
JD Sports Fashion executive chairman Peter Cowgill said: “Companies have to be careful. A lot is made of massive sales online, but there is very little profitability in it and that’s what counts.”
Philip Day, chief executive of Edinburgh Woollen Mill Group, which owns the eponymous chain, the value retailer Peacocks and their transactional websites, said: “It is difficult to get the scale for it [online] to work commercially. One of the biggest challenges online is availability; people want to be able to get things and get them quickly.”
House of Fraser chief customer officer Andy Harding agreed: “Where you see profit is when you get scale, because the costs are outweighed.”
Dave Conaghan, co-owner of young fashion business Chocolate in Derry, a former Drapers Multichannel Independent of the Year Award winner with a transactional site accounting for about 35% of sales, said: “Competing to be profitable online is difficult for independents as they are up against so many bigger players that can offer discounts and free postage or returns.”
However, Giulio Cinque, owner of men’s and women’s wear designer indie Giulio in Cambridge, which operates online through Farfetch, said: “The customer wants that level of service so you have to find a way to achieve that.”
The fashion director of a department store agreed: “Online isn’t an option anymore; you have to do it, so you may have to make savings elsewhere.”
PwC’s head of retail consulting David Oliver said online is only expensive if looked at as a separate channel. He added: “Three or four years ago retailers thought of online and stores separately; now they are starting to recognise they are interconnected.
“A lot of customers that come into store will have been online first so it plays an important role in driving sales.”
PwC’s report, The Omni-Channel Fulfilment Imperative, was published on April 14.