Why Online Shopping Is A Nightmare For Retailers

Every major retailer is investing heavily in e-commerce and many are closing physical stores as more and more consumers shop online.

It might sound like a money-saving move to shift more business online.

But due to shipping and packaging costs, as well as higher rates of returns, some retailers end up losing money online, the Wall Street Journal reports.

Costs can run as high as 25% of sales for retailers that outsource their e-commerce operations, industry analysts told the Journal.

Kohl's, Wal-Mart, Target, and Best Buy have all expressed concerns about the cost of their online operations.

"Kohl's Corp. says its profitability online is less than half what it reaps in its store," the Journal's Suzanne Kapner writes. "Wal-Mart Stores Inc. says it expects to lose money online at least through early 2016 as it invests to build its technology, infrastructure and fulfillment networks. Target Corp. says its margins will shrink as its online sales grow."

E-commerce accounts for only one tenth of total US retail sales, but that share is growing rapidly, as shown by the chart below.

BI Intelligence