Ecommerce Online and Offline Paradox

The Wall Streety Journal has highlighted the problem that many folks now investing in ecommerce are starting to realize; stores are actually more profitable in many cases.

The example used, Primark, is actually very interesting. Here we have a retailer that is completely ignoring ecommerce and instead investing all their resources in stores – and doing a great job. This quote from the finance director sums up their position:

“We are not in the business of doing something and not making any money on it,” said John Bason, finance director of Primark’s parent, Associated British Foods PLC.

This could be determined as a shot at Amazon and other ecommerce players who operate a near zero margins as a result of a focus on volume. But the paradox we are discussing, as stated by Kohl’s CEO:

“If you don’t play online, you are making a pretty big mistake, because that is where the market is moving,” said Kohl’s Chief Executive Kevin Mansell.

So confusing right? The WSJ article notes a critical point, one that many thinking about the online-offline paradox should think about carefully:

One reason for lower online margins at Kohl’s is its low prices. Retailers that sell inexpensive goods are at a particular disadvantage on the Web, because it costs roughly the same to warehouse and distribute lower-priced items as it does higher-priced items of the same size.

This is economics of selling dictate whether you sell online, offline or both. That is the bottom line and current state of retail as we know it.

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