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Retail Omnichannel Investments May Be Short on Profit

Merchants are putting a lot into omnichannel, but they don’t yet have a lot to show for it.

A new study released by JDA Software Group (prepared for them by PwC) shows that, despite heavily investing in their omnichannel sales capabilities, only 16 percent of retailers are presently turning a profit as a result.

The study, called “The Omni-Channel Fulfillment Imperative,” was conducted in late 2014 and surveyed more than 400 CEOs of retail and consumer goods companies worldwide.

The big takeaway from the survey is that the high cost of fulfilling omnichannel orders is eating into profit margins. As companies focus on expanding across multiple channels, so do related expenses, according to 67 percent of survey respondents. Among the costs associated with omnichannel, the highest cited were handling returns (71 percent of respondents), direct shipping to customers, (67 percent), and shipping to the store for customer pick-up (59 percent).

"Every time retailers receive an online order, they have a number of options to fulfill that demand. They can pull the product from a local store, send it from a centralized warehouse or ship it directly from the supplier,” said Kevin Iaquinto, JDA’s chief marketing officer. “JDA’s new 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. They need intelligent logistics and fulfillment 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."

Despite the apparent fact that the majority of them are not yet maximizing the profitability of omnichannel, the CEOs surveyed view it as an essential aspect for their businesses, with 71 percent of them calling omnichannel fulfillment either a high or a top priority. In 2015, an average of 29 percent of their expenditures will go towards improving it.

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