These are the findings of a study conducted by HRC Advisory, a retail advisory firm. Research also suggests that investments in supply chain upgrades, digital marketing and IT, variable logistics costs and managing a high level of online returns are generating incremental SG&A costs of 2 to 3% of sales. Furthermore, the combination of this, together with real estate, wage inflation and the declining in-store sales are resulting in a 1-2% reduction in physical store profit contribution.
On the other hand, the pace of online sales growth has decelerated as the channel reaches maturity. For example, the online sales growth rate for 11 public department store chains declined from 39.3% in 2012 to 18.6% in 2015, while the online sales growth rate for 22 public specialty stores declined from 17.5% in 2012 to 9% in 2015.
Another important issue is that online returns are expensive and ecommerce volumes are not sufficiently high to justify store closures. In addition, as many stores have significant lease termination obligations, retailers may incur a substantial cost to close the weaker stores early. Moreover, many retailers have introduced broad-based price-matching policies comparable to other online or brick-and-mortar retailers.
The study analysed the financial data for retailers across three important sectors, including 11 department stores and luxury chains with aggregate sales of USD 126 billion, 22 specialty apparel and beauty stores with aggregate sales of USD 67 billion, and 4 off-price retailers with aggregate sales of USD 49 billion.
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