Much has been written and said about the challenges traditional brick-and-mortar retailers have had as more business moves online. Just take a look at Nordstrom. As the Wall Street Journal reports, while the clothing and home goods retailer is making more sales than ever before through e-commerce, profits sagged 17 percent over the past year:
Nordstrom has generous free-shipping standards and offers in-store pickup and other services that round out the so-called omni-channel strategy that many retailers are trying to build. That meant a 12% boost in inventories last year, however, far ahead of sales growth, and the company’s costs jumped 10% and sliced into profit margins. Chief Financial Officer Mike Koppel says the effort is part of an investment, one the company hopes pays off as it figures out how to “make our inventory more efficient.”
Analysis: Impulse Avoidance Is Key to Retailers' Online Shift
Nordstrom's situation "reinforces a lot of what we've been saying about the e-commerce and matrix commerce shift," says Constellation Research VP and principal analyst Guy-Frederic Courtin. "A lot of these retailers are going into it blindly and offering things like free shipping and free returns without thinking enough about the cost it has related to inventory and profit. You can't just willy-nilly give this stuff away—you have to think of your overall strategy."
Of course, at the same time Nordstrom's challenges are "a byproduct of the whole movement toward consumers getting more power, dictating what they want and how they want it, whether it's B to B or B to C," Courtin adds. "Companies are having to react to it, but they're reacting to it too quickly without understanding the repercussions to their own business."
Meanwhile, the world's largest online retailer, Amazon, this week said it would raise the threshold for free shipping on orders to $49, as the Journal also notes. But while Amazon has also grappled with rising shipping costs, the move isn't necessarily a response to that. Rather, it's hoping to drive more customers to its Amazon Prime service, which provides two-day shipping on all purchases in exchange for $99 a year.
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