"Our analysis indicates traditional retailers' supply chain costs are roughly three times lower than [online] pure plays when leveraging store fulfillment capabilities," Cowen & Co. analyst Oliver Chen wrote in a note to investors Thursday. ( Tweet this )
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In contrast to physical retailers, who can utilize their expansive store networks as points of distribution, online-only companies have to rely on a smaller system of warehouses that tend to be located outside of high-population areas, where the land is cheaper. Even the leader in online commerce, Amazon, has fulfillment centers only in roughly a dozen states.
On top of this advantage, Chen said traditional retailers can ship multiple items at a time to stores, as opposed to one-off packages that go directly to consumers. They also offers shoppers the option to pick up items in store, which removes incremental shipping costs. And again because of their store footrprints, bricks-and-mortar retailers have more opportunities to ship next-day packages on the ground, which is on average three to four times cheaper than by air.
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"Beyond the profitability advantage, the convenience of buy-online, pickup in store should continue to gain traction with consumers, driven by mobile providing stores an advantage in years to come," Chen wrote.
Online-only retailers sill have their own advantages, of course. They aren't saddled with the expenses associated with running a physical store, including rent and higher labor costs, for example.