CSCMP's Supply Chain Quarterly
December 12, 2018
Forward Thinking

Retailers turn to technology, policy changes to help contain omnichannel fulfillment costs

As the cost of fulfilling online orders rises, retailers are rethinking service guarantees, delivery charges, and technology investments, according to a survey of retail executives from JDA Software and PwC.

Retail CEOs in North America, Europe, and Asia have less confidence in their company's ability to meet their customers' omnichannel fulfillment expectations than they did in 2014. Moreover, only 10 percent of respondents are able to make a profit while fulfilling omnichannel demand, according to the report "CEO Viewpoint 2017: The Transformation of Retail."

The report, which details the results of an annual survey conducted by the consulting firm PwC for JDA Software. is based on 351 responses from retail executives in the United States, Mexico, the United Kingdom, Germany, China, and Japan. Respondents were polled in late 2016.

The survey results indicate that retailers are seeing their costs rise due to omnichannel fulfillment challenges. Seventy-five percent of respondents said that online operating costs as a percentage of sales had increased in the last 12 months. Additionally, 74 percent said that the cost of customer returns is eroding their profit margin.

These concerns about omnichannel profitability and costs may be why 69 percent of respondents said they plan to increase their investments in transforming their digital sales and fulfillment channels over the next year. Those investments will focus on such initiatives as increasing the company's mobile capabilities, making better use of "big data," and investigating new technologies such as the Internet of Things, robotics, and augmented reality.

In addition to technology investments, many retailers are planning significant changes to their omnichannel fulfillment policies. The number of retailers that are offering same-day delivery dropped to 33 percent of respondents, down from the 43 percent reported in last year's survey. Additionally, the percentage of retailers providing specific delivery time slots has dropped to 27 percent from 48 percent in 2016. Instead, retailers are trying to promote their "buy online, pick up in store" fulfillment option. More than half (51 percent) of survey respondents said they plan to offer in-store fulfillment within the next 12 months, up from 47 percent in 2016.

Retailers are also looking into raising their delivery fees. Thirty-five percent of survey respondents said they plan to increase customer charges for delivery of online orders. Another 33 percent plan to raise the minimum order value required to qualify for free shipping.

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