How profitable is online sales? – RetailWire



Sep 16, 2019

“What online-only business is really profitable? Basically none of them. It’s that dirty secret.

That’s what Everlane CEO Michael Preysman said last week at CNBC Jim Cramer on why Everlane is opening stores.

The statement is a complete overthrow for Mr Preysman, who said The New York Times in 2012 he preferred to “close the business” before opening a store.

Mr. Preysman said CNBC, “Everyone likes to say that you don’t spend money online, but the way things work now with Facebook, Instagram and how much it costs to acquire a customer, then you have to ship it all. “

The clothing retailer has just opened its fourth store in Brooklyn, joining others in Manhattan, Los Angeles and San Francisco.

In another about-face, Andy Dunn, co-founder of Bonobos and now senior vice president of consumer digital brands at Walmart, told attendees earlier this month at the Future of Home conference in New York: “I don’t really like digital native vertical brands. . What excites me are the brands that are really strong and direct to the consumer, but which also have the omni.

According to Business intern, he described e-commerce as an “extremely difficult and often unprofitable business” and emphasized that consumers want to interact with “brands, products and people” face to face. His most profitable business is the bonobo “guide shops” inside Nordstrom.

Although early digital startups like Casper, Glossier, and Rent the Runway hit valuations of $ 1 billion this year, studies consistently show that online selling continues to be price driven. The main buying incentives include free shipping, free returns, and coupons.

A recent draperies article exploring the “real cost” of selling online, which avoids rent and associate compensation is often offset by major investments in customer acquisition, satisfaction and the cost of returns. According to draperies, a UK department store has told suppliers that any online order under £ 30 ($ 38) is unprofitable.

One less talked about challenge is rising customer acquisition costs and low online retention rates. Matt Alexander, CEO of Neighborhood Goods, the start-up specializing in bringing native digital brands to physical locations, recently said Crunchbase News, “Customers acquired offline are five times more valuable in their lifetime than those acquired digitally.”

DISCUSSION QUESTIONS: Does online selling still face short-term profitability issues or is it inherently unprofitable in its current configuration? What are the main barriers to profitability for online retailers?

Braintrust

“We can dissect brick and mortar stores all day, but shopping is and always will be a social activity. “

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