Retailers are Seeing the Benefits of E-Commerce Supply Chain Investment
It would appear that retailers are beginning to figure out how e-commerce logistics work. Some of the biggest US retailers are claiming growth in online sales, according to the second quarter earnings reports published recently. This is an extension of a trend where the revenue generated by e-commerce is exceeding revenue that is generated by bricks and mortar sales. Added to this, many retailers are claiming that they are finding ways to deliver goods to the customer more efficiently, resulting in greater profit margins.
For example, Home Depot is claiming 25% growth in online sales, compared to the same period last year, and now account for 5% of the companies entire revenue base. The company claims that at the same time last year they were bogged down by the high prices they were paying to transportation companies, and this is a contributory factor in the recent growth. They also attribute the growth to improvements in logistics, including a boost in productivity in the distribution networks and the drop in fuel prices.
Target is another company who has seen big gains from their e-commerce arm in the second quarter of this year. They posted growth of 30% in digital sales, as part of 2.4% overall growth.
These gains are posted against a backdrop of traditional retailers struggling to keep up with rapid developments in the purchasing habits of consumers and the fact that competition from online specialist retailers, such as Amazon, is stiff. While the traditional retailers can see a boost in sales from online transactions, profits are not proportionately affected as they continue to maintain the costs associated with their physical shop-fronts. Delivering merchandise to both consumers and stores in parallel to each other represents a challenge to keep costs down while maintaining all the necessary distribution channels.
This requires investment initially, but retailers who have taken steps to improve the efficiency of their distribution channels are now beginning to see the benefits. Some of these steps have included adding the ability to ship from the store to the customer, a task which adds complexity to finding the most cost effective ways for the fulfillment of orders, but comes with the benefit of making more inventory available to online shoppers, and shipping may be faster in some local areas. All of this enhances the customer experience, which is a key factor in maintaining growth.