An overwhelming number of retailers are losing money chasing Amazon – CNBC
Brick-and-mortar retailers are becoming more competitive online by providing tighter delivery windows and offering the option to pick up digital orders in-store.
There’s only one problem.
As they invest billions of dollars to close the gap with Amazon, the overwhelming majority of traditional retailers still hasn’t figured out how to profitably fill orders that incorporate both the web and the store.
According to a new report by JDA Software and PwC, only 10 percent of the 350 global retailers surveyed are making money fulfilling these types orders. They’re plagued by high delivery costs, rising return rates and the labor required to pull merchandise from shelves for in-store pickup.
The challenges are even greater for retailers outside of the U.S. and U.K., which have invested more time and money in these strategies.
JDA’s findings come just days after Macy’s warned that its margins will decline each quarter this fiscal year due to increased shipping costs. They come roughly a month after Urban Outfitters and Target said greater digital demand cut into their margins over the holidays.
The survey results underscore the delicate balance retailers navigate in meeting customers’ growing demands while protecting their margins — something Wall Street has given Amazon a pass on. That’s partly because Amazon is able to offset its shipping costs through its Web Services platform.
“Retailers now need to balance the effectiveness and profitability of the fulfillment channels they offer with customer satisfaction,” Lee Gill, JDA’s group vice president of global retail strategy, said in a statement.
“If shoppers experience a problem with home delivery or in-store pickups, that is a lost sale – and customer – that retailers can’t afford in a highly competitive market,” he said.
As retailers work to tilt the profitability scale back in their favor, 62 percent told JDA they plan to raise the minimum spending requirement for free standard home delivery over the next year. Separately, 55 percent said they will raise the minimum order value required for in-store pickup.
Several CEOs will also decrease their investments in areas that are becoming too burdensome on their bottom lines – most notably, same-day delivery.
Of course, these trends will not apply to every retailer. They’re also more prevalent in international markets, as U.S. customers have come to expect perks like free shipping.
“Customer expectation for things like free shipping and free returns have pushed U.S. retailers away from charging for these services. If anything they’ve reduced their minimums,” Jim Prewitt, vice president of retail industry strategy at JDA, told CNBC.
Indeed, in just the past month, Wal-Mart lowered customers’ minimum spending requirement for free shipping from $50 to $35. Amazon responded by trimming its minimum order threshold from $49 to $35 for shoppers who don’t subscribe to its Prime service.
Following Wal-Mart’s fiscal fourth-quarter earnings release on Tuesday, CEO Doug McMillion told investors the company has already seen a “nice uptick” in its digital sales since rolling out its change.
“We’ve got the right building blocks in place,” Marc Lore, president and CEO of Wal-Mart’s U.S. eCommerce division, told reporters on a separate call. “We’re moving as fast as we possibly can.”