Study: Fulfillment costs erode up to 70% of brands’ order value
Complexities associated with online shipping and fulfillment are eating into retailers’ profitability.
This was according to “Strategies for Agile, Profitable and Secure Omnichannel Execution.” The report, from Radial, revealed that more than 55% of customers are using multiple channels, such as online and mobile to shop.
Yet, over 40% of retailers describe fulfillment costs as a major challenge impacting their business. In fact, the average cost for a company to fulfill an order is a staggering 70% of the average order value.
Further, 67% of CEOs said that costs to fulfill orders have increased over the past several years. Specifically, inventory order and supply chain operations are not properly aligned — according to 37% of retailers — and are therefore, driving up costs.
Many companies are adopting a number of tactics, including non-traditional shipping solutions, like "buy online, pick up in store" and "buy online, ship from store” — efforts to marry customer expectations with back-end efficiency. Despite a small reduction of costs, complexities and hidden fees associated with process, inefficiencies continue to persist.
Specifically, 31% of retailers are challenged with split orders, where multiple products in one order must be shipped from different locations. Meanwhile, 56% of retailers said their order management systems need to be able to process at higher volumes and velocity, and to source from a variety of channels. And when it comes to automating order capture and processing, 40% of retailers have trouble integrating inventory and standardizing order management from different order types across channels.
"The post-click ecosystem is difficult for even the most successful omnichannel retailers to navigate," said Stefan Weitz, executive VP, technology services at Radial.
"Customers expect limitless selection, next-day delivery, frictionless payments and easy returns,” Weitz said. “While all this adds up to a seamless experience for the shopper, retailers are faced with mounting costs.”
With more than 35% of retailers still in the planning stages of deploying intelligent order technology, the industry is not moving quickly enough to meet demand in today's fast-paced retail landscape. By shifting responsibility from the retailer to a fulfillment partner, retailers will be better positioned with a long-term solution for the increasingly complex shipping landscape, according to the report.
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Bebe winds down brick-and-mortar operations
It’s closing time for Bebe — at least, it is for its retail store operations.
The struggling apparel retailer said on Wednesday, June 7, that it has entered into a number of strategic real estate deals that will benefit the company two ways. In addition to shuttering its stores without having to file bankruptcy protection, the company’s brand name and web site will stay in operation — albeit through a new owner.
Bebe reached agreement with substantially all of its retail store landlords to terminate their existing leases. The cost to terminate the leases is estimated to be approximately $65 million.
The fashion retailer also signed an agreement to sell its distribution center in Benicia, California for approximately $22 million. Bebe expects to close the sale of the facility within the next 60 days. The retailer is also actively seeking a buyer for its design center in Los Angeles.
Bebe has also entered into a $35 million loan agreement with GACP Finance CO, LLC, a move that will enable the company to make payments to the retail store landlords pending the closing of the building sales. In addition, Bebe has transferred both the bebe.com URL and its international wholesale agreements into its joint venture with Blue Star Alliance. The venture has executed a royalty agreement with a third party for both operations.
Bebe is also in a Transition Service Agreement (TSA) and Asset Purchase Agreement (APA) with the third party. This firm will provide the sales of certain inventory and bebe.com site management, a move that will enable the company to facilitate the operation of Bebe’s online and wholesale businesses. Going forward, Bebe will collect royalty income through its joint venture, according to the retailer.
The company was advised by its financial advisor B. Riley & Co., a firm that Bebe hired in March to explore strategic alternatives. Like many traditional retailers targeting young women, Bebe blames its struggle on increased competition from Amazon and fast-fashion retailers like H&M.
The more than four-decade-old retailer is the latest mall-based casualty. Earlier this year, The Limited and The Wet Seal also closed all their stores. Most recently, Rue 21 said it would shutter 400 locations.
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