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.