PwC: Top retailers say omnichannel sales are not profitable

What is eroding retailers’ margins as they sell and deliver products across multiple channels is the high cost of fulfilling orders. Over two thirds (67 percent) of respondents reported that these costs are growing as they increase their focus on selling across channels.

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Despite the hype about the need for their adoption, top retailers are not benefiting financially from having omnichannel sales funnels, according to research from PwC.

The PwC study, on behalf of JDA Software, reveals “an enormous amount of money, energy and time is being spent” by retailers and consumer goods manufacturers to improve their omnichannel sales capabilities. But despite these investments, only 16 percent of companies say they can currently fulfil omnichannel demand profitably.

The study is based on a global survey of 410 retail and consumer goods CEOs from around the world, including in the UK. What is eroding retailers’ margins as they sell and deliver products across multiple channels is the high cost of fulfilling orders. Over two thirds (67 percent) of respondents reported that these costs are growing as they increase their focus on selling across channels.

The high costs associated with omnichannel sales included handling returns from online and store orders (cited by 71 percent of respondents), shipping directly to the customer (67 percent), and shipping to the store for customer pick-up (59 percent).

The CEOs in the study recognised they needed to continue investing in business improvements to enhance their omnichannel performance. However, reducing the associated logistics costs is not their primary focus. When asked to rank their top initiatives for improving business operations, CEOs’ number one choice (57 percent) was spending capital on “creating new customer experiences”.

Similarly, when asked to rank strategic growth enablers for the year, reducing/reformatting physical store footprints to focus on expanding the ecommerce business was the top choice at 53 percent.

Kevin Iaquinto, chief marketing officer at JDA, said: “Every time retailers receive an online order they have a number of options to fulfil that demand. They can pull the product from a local store, send it from a centralised warehouse or ship it directly from the supplier.

“The study demonstrates that most retailers lack the insight to make these decisions in a profitable manner, and are not sufficiently focused on this critical capability gap.”

He added: “Retailers need intelligent logistics and fulfilment solutions that can reveal the hidden costs and the customer service trade-offs associated with every delivery option. In addition, to truly win in the omnichannel marketplace, retailers need the upfront demand forecasting tools to make sure products are already distributed across all locations in a manner that supports profitable delivery.”

The study shows matters are in hand though. Seventy-one percent of CEOs said omnichannel fulfilment is either a “high” or a “top” priority. The fulfilment capability most cited as needing attention was transportation and logistics, mentioned by 88 percent as a priority. The second capability CEOs will focus on is improving inventory availability to fill orders, cited by 85 percent.

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