That is a prime area for growth in coming years. Starbucks fits into a few other categories as well product and customer experience , but my point is that they are on almost every street corner. It is always convenient to find Starbucks coffee. Many retailers focus on convenience alone corner stores, shops in tourist locations, fast food restaurants, etc. As they say, location, location, location.
Having a sunglass shop in the right spot can turn a good business into a great business. But to truly scale you need to mix in product loyalty or customer service as well. There are many aspects to retail, which is why it is a fascinating industry. Yet I believe that these 5 points can form the basis of all successful and scalable retail operations.
As the world continues to change and customer engagement evolves, there will be increasing divides between the distribution kings and the retailers that focus on product and customer experience.
Especially when it comes to e-commerce, you can either ship it faster and cheaper, sell a product that nobody else has, or provide a great customer experience that keeps people coming back. For you. World globe An icon of the world globe, indicating different international options. Get the Insider App. Click here to learn more. A leading-edge research firm focused on digital transformation. Good Subscriber Account active since Shortcuts.
Account icon An icon in the shape of a person's head and shoulders. It often indicates a user profile. Log out. US Markets Loading H M S In the news. Retail Contributors. Daniel Kline , The Motley Fool. Read our article on Gross Margin Types for more details. While sourcing their products, retailers have to try and get the highest intake margin from suppliers and then figure out the final realized margins after running all their promotions for the year to see if they will produce enough gross margin to support their operational costs.
Use our markdown planning tool to forecast your final realized margins. In order to provide the service to their customers, retail stores will have certain overheads to pay for.
This is why the initial gross margin has to be high enough to pay for all those overheads and at the end return a net profit out of the retail or ecommerce operation. You must have noticed that the money a retail store will make at the end is a function of sales or revenue. In order to be able to make good sales, the retailer needs to source products that are in demand and sell well. These products should also be sold at a high enough gross margin as discussed before.
In fact, sourcing the wrong products does not only affect sales, but it also affects the margins of the business. This is because if these products are not sold, they will have to be discounted and this will result in lower realized margins.
Generally, store merchandise gets there by the semi-truckload, so a retailer has paid for that distribution cost once. Then, if an order placed online is fulfilled from store merchandise, employees at the store have to pick, pack, and ship individual orders to a shopper's home. Not only has that same outfit now shipped twice, at the retailer's expense, but the "last mile" or the final leg of the delivery journey is far by the most expensive. So back to our example. AlixPartners explains that the cost of returns is not discussed in the models as it's very difficult to factor in numerically, but it is critical to understand, as it's especially costly for online purchases.
Clothing items bought online are returned three times more than items bought in-store on average. But processing those online returns can be six times more expensive compared to in-store. Industry standard suggests 30 to 40 percent of all clothing bought online ultimately gets returned. This makes sense given it's very hard to know how clothing will fit and feel without seeing it in person first. Plus, consider that many consumers may order the same clothing item in several sizes or colors online, only ever intending to keep one.
So, if the items are shipped for free to the shopper, and returned at no cost to the shopper, that leaves the retailer absorbing shipping costs both ways on up to 40 percent of all clothing items bought online. If a retailer has a store network, like in our model examples, many consumers will choose to return in-store and then there's a much higher chance the consumer will buy something else on that trip.
Target says one-third of shoppers that pickup online orders in store buy something else. An in-store return can lower the cost somewhat, since return shipping may not be paid by the retailer if the item stays in store and can be resold. But, there is a cost to re-process the item, and it may end up being shipped back to a distribution center, but this time in bulk with other items.
In other cases, it's a lost sale entirely and the item counts as a loss, along with all the other returned goods that can't be resold. Most retail experts think that both stores and online options give retailers the best chance for success to optimize the shopping experience. The big question is what percent of sales should come from each channel to achieve maximum profitability, and when will the industry hit that equilibrium.
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