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The need to focus on improving profitability from your eCommerce channel.

With eCommerce now accounting for a much larger portion of sales, the return from investing in efficiency gains has never been greater. A few years back when eCommerce channel sales comprised a smaller percentage of sales, it was easy to delay conversations on improving profitability and focus on growing top-line sales.

Now there will be considerable return from focusing on profitability. This does not mean that you won’t be investing in sales growth, however, retailers that invest in efficiency gains and continue to invest in brand awareness and overall digital platform performance will have a greater advantage over their competition.

eCommerce Managers and Operations Team need to ensure they align on defining profitability measures and ensure that key costs are not being hidden by the overall costs of the business, for example, ensure labour, packaging and freight costs are specific for eCommerce orders being processed. It is important these are being measured and monitored and that key KPIs are set on both variable and fixed costs. The first part of finding efficiencies is ensuring you are measuring these. Think about hidden costs and how to measure them, often costs of customer service appraisement, damaged products, wrong product sent, returns to store etc are never recorded against the eCommerce channel. How much is this costing you? For example, recently my wife had an item refunded as they sent her the wrong size and did not want the item back. Is this being recorded as a cost or hidden in product write-off or shrinkage? Even if items are returned what is the cost to get them back and process them?

In the world of eCommerce, the greatest efficiency gains can be made around fulfilment and this has often been overlooked with a focus on customer-facing and sales-generating initiatives. Now is the time to put more focus here.

Many pure-play eCommerce businesses have been very focused on the efficiency of order fulfilment, knowing that for every percentage they can take out of this cost, they need to be competitive and profitable. It is no accident that Amazon has invested heavily in this to support its growth. Although that may conjure up thoughts of robots and fully automated distribution centres, that isn’t the reality for most retailers. There are cost-effective ways to get more done with less. Look at how you leverage your store network to reduce freight and used latent labour (time the retail team may be waiting for the next customer) in stores to support order fulfilment. This also reduces the capital needed to invest in new or expanded warehousing. Implementing a scan-based picking and packing workflow to speed up processes and reduce mistakes, for example moving from pick by order to wave picking generates considerable efficiencies. Using tools and systems to reduce daily admin will all add up to increased efficiency.

Long-term success for retailers will be reliant on being more efficient than your competitors, not only does this give you better profitability to invest in this channel it allows you to win the customer battle with better service, more competitive costs, better promotions and many more. If you have not already started the conversations with your eCommerce, Operations and Finance teams to put a focus on eCommerce profitability there is no better time to start. There is a benefit in engaging with experts to help ensure you look at this objectively and don’t get blinded by how you look at it today. Many retailers will find that the return on starting this journey with investment in a modern order management system will provide a significant return on Investment, many providers also have the expertise to support you in this journey.

eCommerce is now a core part of all retailer's businesses it is time to get your eCommerce and operational leaders to put more focus on the drivers of profitability in your eCommerce channel and improve it.

If you can do two things today, start with key measurements around fulfilment costs including those hidden costs and start talking with those in the industry who may be able to help you drive greater profitability from your eCommerce channel.