Online sales growth is giving retailers a much-needed lift during an otherwise mixed holiday season — but it comes at a cost.
FedEx CEO Fred Smith told investors on an earnings call Tuesday that investments to meet record volumes took a bite out of its profit during the three months ended Nov. 30. That includes the five-day shopping stretch that started Thanksgiving, and ended with a record Cyber Monday.
To help the shipping company wrestle the costs from rising demand, which include building out its distribution network and adding more employees, FedEx said it cut ties with some of its customers who couldn't agree to its pricing and capacity requirements.
The comments came just days ahead of pending rate hikes from FedEx and UPS, highlighting the double-edge sword that retailers face when it comes to growing their digital business.
Not only are they saddled with rising expenses to send out orders and process returns, they often eat the cost of pricier shipping methods to grab shoppers' spending later in the season. Nike is just one retailer that was offering free expedited shipping ahead of the holidays. While they're trying to offset these costs with in-store pickup capabilities, the staffing and technology required for those services can make it pricey, too.
"The cost of e-commerce is weighing heavily on most retailers [profit and loss statements]," Stifel analyst Richard Jaffe told investors. "Despite the expense and possible cannibalization, retailers must participate or risk losing share to competitors."
Indeed, with online sales driving much of the gains this season, sitting on the sidelines would be detrimental to most retailers.
According to Cowen and Co., which analyzed data from ShopperTrak, foot traffic decelerated during the week that ended Super Saturday. That day is the final full shopping Saturday before Christmas, and was expected to be one of the busiest days of the season.