Traditional retail metrics are no longer sustainable — or are rapidly becoming such — in a digital retail environment.
That is the finding of HRC Retail Advisory’s latest study focused on mature retail businesses. The study is a companion piece to a May 2016 study that found that efforts to beef up digital commerce capacity were both eroding in-store sales and eating up profitability.
“This is a challenging time for brick-and-mortar retailers as they work hard to profitably compete against digital pure-plays, while concurrently managing their brick-and-mortar profitability,” said Antony Karabus, CEO of HRC Retail Advisory and author of the study. “Very high fulfillment costs, free shipping and returns and the challenging issues of refurbishing and getting returned product into a re-saleable state and location can add a substantial two percentage points or more to a retailer’s cost structure. Retailers must take action now to address these issues, which are not economically sustainable.”
The study additionally found that pressure from Amazon and its continual grabbing of retail share across categories with 30+ percent topline growth over the last two years has a large effect. Traditonal retailers during the same time period have not seen similar speed, with specialty retailers notching 9 percent sales increases and department stores averaging 19. That is a big step down from the five-year average of 12 percent and 29 percent, respectively. Amazon’s North American merchandise growth rate is about three times that of the brick-and-mortar chains’ online growth rate, indicating a continued loss of market share to Amazon.
The expansion in the numbers of stores is also lowering sales-per-store figures, and selling online is incredibly expensive for retailers.
“The increase in eCommerce penetration rates for brick-and-mortar retailers is coming at a very high cost,” Karabus said, “especially in situations when most eCommerce sales are as a result of a channel shift.”