Retail or online sales: more profitable?

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Retail or online sales: more profitable?

As online shopping has become the norm, retailers have begun to question the traditional model of bricks-and-mortar stores and instead adopt an online business model. It raises the question of whether having an online retail business is more profitable than having physical stores.

Thanks to CNBC and AlixPartners for a more accurate assessment.

The model established by AlixPartners can compare costs between two business forms:

Online retail stores need to consider additional costs, such as the selection, packaging and transportation costs that arise during the delivery of goods to customers at home.

In the online business model, the purchased items are sent to individual shoppers by item, which is more expensive than bulk orders and receives the entire inventory in the store.

Moreover, the cost of a high rack and infrastructure in the distribution center is likely to be three times higher than in traditional retail stores.

In addition to the above cost, also need to consider such as website, online retail business applications, distribution centers and transportation partners, and other functions, and in order to allow shoppers to visit the web site search engine optimization (seo), all of these costs are through online shopping patterns.

On the other hand, it is not always the most cost-effective solution to store a store as a distribution center, because it means two deliveries of one garment, resulting in “double transport costs”.

As the last warning in online transport mode: return questions; Up to 40% of online ordering items are refunded, while retailers charge shipping for those returns. In contrast, brick-and-mortar stores will not encounter the transportation costs and have the opportunity to regain their returns. When a store returns, customers may find other items they want to buy.

Online mode, however, can obtain higher profits, through increased sales to expand management cost and investment scale, online retailers can also add free shipping at a minimum, thus reducing transportation costs.

Ultimately, optimizing online and buying in stores will result in maximum profit margins. The tricky part is what percentage of sales should come from every channel?

Here’s what AlixPartners found in retail profitability:

In-store sales: profit margins of 32%

Online store: 30% profit margin

Online orders, in-store pickup: profit margin of 23 %

Online purchases and store shipments: 12% profit margins

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