Closeout retailer Tuesday Morning has shut down its shopping web site. On first blush this may seem like a befuddling decision.
It is cold comfort to shoppers but it’s actually understandable when looking at pure dollars and cents. In fact, the very same dollars-and-cents issues have deterred TJ Maxx, Nordstrom JWN -0.54% Rack and even fast-fashion retailer H&M (until recently) from selling outside the four walls of their stores. Why? Well it turns out getting merchandise available for sale online isn’t as cheap as you might think. It can be expensive. And if the expense of putting the product for sale online wasn’t deterrent enough, getting low-margin product picked, packed and shipped when you’ve built your business model around brick and mortar stores adds more expense and ultimately can make the whole exercise unprofitable. Plus, close-out or discount retailers in particular don’t always buy large lots of any one style, forcing a decision between putting it in stores, selling on-line. Certainly Costco (for example) makes no bones about stating what it has available for sale on-line has little to no relationship to what it’s selling in its warehouse stores. That’s the “treasure hunt” metaphor. You go to the store, find something that delights you at a low price and take it home. But is that enough?
Let’s take a look at what it takes to make a product available for sale online.
Shoppers expect to zoom in, out and around photos of products they want to buy. They want a full review of product features / benefits. In some instances, the information and graphics are available from the manufacturer, but not always. And surprisingly, some retailers still don’t have ways to get product information they do have available onto their web sites in an automated way. There’s a lot more re-typing going on than you might think. And while the software to spin product photos in multiple directions may not be expensive in relation to millions of dollars in potential sales, the photographing is another of those “human ventures” that take time and money, and suck profits out of the sale.
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At this point you’re thinking, “Well, how to companies like Overstock.com OSTK -1.18% or Wayfair .com do it?” Two reasons: 1) they don’t have to worry about ‘feeding’ their stores since their whole businesses are built around the web and 2) they’ve created distribution center and shipping efficiencies that allow them to cut costs on the delivery side.
Just recently, H&M started selling merchandise on-line in the US. I believe there were two factors driving the decision: 1) its millennial customer fully expects it, and 2) Its presence has grown enough in the US that it can afford both dedicated distribution centers for ecommerce and it can bring in enough merchandise to feed both in-store and online shoppers.
TJ Maxx has also committed to starting ecommerce operations again. I believe the company has decided it can’t afford NOT to have a web storefront. If you want to appeal to young shoppers, you’ve got to go on-line. But of course no one can afford to lose money in the process either.
How can this be solved? Retailers are gradually learning how to use their inventory as a shared asset across their web, catalog and store operations. A technology that delivers sometimes dramatic results is called “Distributed Order Management.” We’ve all been in stores and not found the specific item we wanted to buy. Many times, a sales associate will “call around” to other stores to see if it’s available elsewhere. Thanks to technology, the phone calls are no longer necessary. Inventory is made visible through the Point of Sale which helps store associates figure out if it’s in stock anywhere.
The whole process of getting desired merchandise to customers can be automated as well. Tech vendors like Manhattan Associates, Epicor, IBM, hybris / SAP, Oracle, and others (this is not meant to be a complete list) give retailers the opportunity to do through automation what we’ve all seen store associates do by phone in the past: check other locations for merchandise and arrange for the product to be picked, packed and shipped to customers.
But again, technology costs money, and the retailer still has to make an inventory investment that allows it to keep its implicit promise to customers. The price of technology is falling but the cost of inventory, or building a new distribution center to support shipping individual items to customers hasn’t fallen at all. So while some retailers like H&M will take the plunge, others like Tuesday Morning may well decide to avoid the costs. It flips its product mix too often, and much of it doesn’t generate enough profit to make it worth their while.
I don’t believe that too many retailers will be able to make a Tuesday Morning type decision for long. Shopper expectations dictate a seamless experience in any engagement with the retailer of their choice. In the meanwhile, companies like Tuesday Morning will just have to to hope the “Treasure Hunt” metaphor still brings enough shoppers out of their homes and into stores.