With endless stories of stores closing-down plighting the high-street, and online sales appearing to soar, the digital dawn of the internet is undeniably continuing to over shadow our preference for more traditional, analogue shopping trends. Taking into consideration ongoing trade wars, in light of the recent rejection of a Brexit deal, and ongoing supply chain challenges, including potential new tariffs, and inventory shortages; The Supply Chain Consulting Group wished to explore and highlight the struggles of those dominating the digital domains, and stress that it is not just businesses occupying high-street-stores that encounter costly existential difficulties…
Primarily e-commerce over the past several years, has forced many more traditional businesses to cease trading. As a result, many businesses have opted for a solely online presence. Reports show that throughout 2018, a total of 150,000 jobs were axed from within the retail sector; in addition to this – amongst retailers reportedly struggling last year – Poundworld and Maplin entered administration, Marks & Spencer and Debenhams decided to close stores, and Superdry, Carpetright, Card Factory, and ASOS were sadly forced to issue profit warnings. Whether it be online or High-street; a fundamental function crucial to all businesses successfully selling physical products, is an efficient operation and effective warehouse processes.
Despite news items highlighting death to the high-street, and the rise of ecommerce, these stories seem to be misguiding us to believe that, despite this being a grievous time of countless physical store closures, that it is compensated by the fact that these stores’ online presence still remains, and subsequently costs less; however, this is not an accurate representation of the reality of online commerce. The key point being, which unfortunately does not seem to be stressed enough is that although a retailers’ physical store may no longer exist, all businesses, which store and sell physical products, do still consequently encounter their own, cumbersome, overhead costs. Costs of which, in certain circumstances, can sometimes outweigh those of traditional retail commerce businesses.
Upon this dawning digital age, the rise of e-commerce had encouraged significant technological and operational changes within the warehousing and distribution industry. A main turning point being the insurgence of online shopping having forced the hand of the majority of businesses, to review and adjust their entire business models to remain relevant and competitive, not only within the logistics and retail industry, but also for their customer facing services, and brand image.
Both traditional, and ecommerce retail businesses, no matter which medium they chose to sell through, will have similar essential running needs and costs; a prime example being that where-as, yes, an ecommerce store does not have the over head costs of a physical store, and a warehouse combined, they still likely sell the same type and amount of stock, yet instead of splitting the hold of inventory between high-street store and warehouse, have to invest more heavily into a considerably larger square footage of warehouse, in order to thrive, and conduct successful business both on an operational and customer-facing level’ all costs of which, accumulate rather quickly.
Whilst a peak in online sales may be responsible for a decline in retail purchases occurring within traditional brick and mortar stores, this does not equate to a confounding relinquishment of the costs associated with running a traditional retail commerce business, for those in-turn, decide to choose to begin selling exclusively online.
Below are aspects to consider whilst running e-Commerce businesses:
Storage and StaffingWhilst warehouses once simply facilitated storage and distribution for a small amount of inventory, with bricks and mortar stores also storing their fair share of inventory in-house, ecommerce business are without that luxury. Many who are under the inaccurate impression that those trading as a ‘simple’ ecommerce business, are without hefty fees and overhead costs, are sorely mistaken. For ecommerce businesses, of course the overhead costs of the warehouse, still remain, and sometimes incur costs more so than those of a traditional retail company. With no high-street premises to utilise for not only selling, but also storage, ecommerce businesses rely heavily on warehouse space, which therefore can incur greater costs at the expense of the businesses’ success. Warehouses for manufacture and storage are still physical buildings, mandatory to running a ‘products’ business, which accrue costs, for both high-street and ecommerce retail ‘stores’.
ShippingThe main difference between traditional and online shopping, is the shift of focus from B2B, to B2C. Whereas traditional physical store retail models on the high-street, are of course responsible for distributing their products to stores via bulk picking; Ecommerce stores are instead responsible for focussing on successfully distributing their products to their consumers. An often over-looked additional, yet essential cost of running an ecommerce business is then of course, shipping. Ecommerce retailers are ultimately responsible for timely, consistent, convenient and flexible delivery; an important aspect regarded by many consumers as adding value to their service offering, which in turn, needs to be executed corrected to positively impact upon consistent brand loyalty. Considering this perspective, in some instances, ecommerce businesses have a lot more to lose if this service is poor, so may spend more investing in technology to get this right first time, and ultimately repeat business.
Picking and Manual Labour Very closely related to shipping, and customer centricity, the pick, pack and dispatch processes tend to get the most attention from key decision makers within a business. Any sub-optimal performance here directly impacts upon perceived customer service, marketplace ratings, online reviews and revenue shipped per day. Again, similar to shipping, mistakes here will not only cost an ecommerce company money, but also more so, their consumers brand advocacy, and subsequent repeat business. A potential monetary pitfall, which traditional high-street retail businesses do not have to contend with, or even budget to invest in.
Returns costsWith early January just passed, the season of Serial Returners was bestowed upon us. Exclusive to, and a prominent burden within the ecommerce sector of retail, one atypical solution could be to incentivise shoppers to negotiate with products a little more prior to purchasing an item. One prime example of this is successful fashion retailer ASOS. By adopting the app ‘Zeekit’ ASOS enables online shoppers to unlock their own personalised virtual dressing room.The incentive to purchase from ASOS of course remains, yet the need for the consumer to purchase 6 physical differing styles of black dress, to try on at home is near completely negated, due to the decision process having already been resolved via the app.
Being an innovation, solely for use by ecommerce stores, the costs incurred by this type of technology, is usually only relevant to those selling specifically online. However, a worthwhile investment for ecommerce businesses looking to reduce the frequency and costs of their returns process.
Online CostsRecent figures show us that online shopping has, ongoing, been one of the main challenges for high-streets; in 2000, it accounted for less than 1% of retail sales, while in August 2018 almost a fifth of all retail sales took place online.
Whilst prestigious web design companies will advocate investment in expanding online presence, and the development of a distinguished website, for online retail businesses to survive, customer experience concerns more than just product availability, and convenient delivery alone.
The way a website functions, load speeds, ease of access and website traffic, page ranking on search engine results pages, are all conducive, and essentially mandatory, to the successful running and management of an ecommerce business. Once again, a lesser mentioned cost incurred by many ecommerce businesses alone, yet vital for successful and continual survival within the online retail industry.
Ongoing, it is money invested, not simply high-street footfall which ultimately determines the survival of physical stores, and ecommerce operations alike…
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A supply chain and logistics specialist with knowledge of logistics network planning, warehouse design and material sourcing.