It’s a challenge for online clothing retailers to make enough money to cover their warehousing and shipping expenses.
Shares of online-only retailers go at a stock-market premium, because there’s always the thought that strong sales growth will boost profit margins once market share is higher and the benefits of scale kick in (ref WSJ). Thus far, that hasn’t happened – Zalandro, the biggest European opine retailer by market value, has a current operating margin of 2.5%, down from double that rate 3 years ago. The same is true for London-based ASOS, now expanding into the U.S., and a variety of others doing online-only business. Analysts looking at the situation have suggested that the problem lies in the fact that, rather than generating economies of scale, the ever-larger warehouses needed to house goods make it harder to process orders efficiently, causing warehouse and distribution overheads to increase. Zalandro spent 28% of total revenue fulfilling orders this year, up from 22% five years ago. Consequently, it’s being suggested that physical shops could help with the situation. Zara, for example, uses its stores to offer click-and-collect services, whereby one-third of online orders are collected by customers in stores and where two-thirds of returns are handed back in. That keeps delivery costs down and an operating margin at around 18%. It’s a possibility, then, that the online retailers could link up with bricks-and-mortar stores or look at rent leases in shopping malls that are continuing to decline. After all, Amazon has set the precedent by buying Whole Foods as a physical outlet for its goods and services. Or, online retailers could follow Amazon’s path set in Europe – where they signed an agreement with Next to allow Amazon’s customers to pick up online orders in the Next stores. Opening physical stores seems to be catching on in the U.K., where 19 previously online-only retailers have opened physical stores since the beginning of 2018. The WSJ’s assessment is that “the days of e-commerce avoiding the shopping mall altogether look numbered.”
All the moving parts – it takes all the parts moving together to create a successful business.