Retail supply chains can't figure out cost-effective strategy for omnichannel

The importance of reaching potential customers online has become quite clear to business owners, which is why the ecommerce market is quickly becoming one of the largest and increasingly competitive sectors. However, knowing that selling on a digital platform is essential and actually understanding how to do it without losing revenue are worlds apart.

Many retail supply chains are struggling to maintain effective cost reduction strategies in a continuously evolving market. As online sales surge, companies are forced to adjust operations to support multichannel distribution.

Cost challenges
Nordstrom Inc., a leading global retailer, is facing difficulties in generating profits that counterweigh the rising costs of online market share, The Wall Street Journal reported. The company released its fourth quarter and fiscal year earnings last week, which revealed a profit decrease of 17 percent and expense increase of 10 percent.

The source pointed out that these numbers exemplify the challenge many brands are experiencing when trying to identify the best way to approach online selling.

"In evolving with our customers, we've made significant investments to enable customers to shop in multiple ways," Nordstrom Chief Financial Officer Mike Koppel told the news source. "This business model has a high variable cost structure, driven by fulfillment and marketing costs, in addition to ongoing technology investments."

The Wall Street Journal added that it is difficult for many retailers to effectively manage inventory for both in-store and online purchases, which is why the business told the source that a significant amount of spend has been used for inventory management solutions.

Issues with inventory
Research conducted by Forrester Consulting found that, in addition to making deliveries on-time and navigating the growing complexities of order fulfillment and management operations, companies are struggling to meet the rapidly increasing expectations of consumers. Of those surveyed, only 34 percent said that distribution processes were very effective. The report explained that fulfilling orders and managing multiple facilities significantly complicates the installation and execution of picking, receiving, packing and shipping operations.

To maximize potential for online retail success, the source indicated, organizations need to collect and leverage complex data and invest in warehouse management systems and supply chain solutions that can streamline these processes.

As digital technologies continue to dominate the retail space, it's possible that an increasing number of businesses will experience a drop in profits while trying to increase their share in the ecommerce market.

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