What’s the formula for e-commerce profitability?
Dick’s Sporting Goods says it achieved significantly higher profitability in the second quarter in its e-commerce channel through fewer and more targeted promotions, better leverage of fixed costs and strong customer adoption of curbside and in-store pickup.
“Because of these factors and other efficiencies, the profitability of our online business is now in line with total company EBIT margin,” said Lee Belitsky, EVP and CFO, on a call with analysts.
Asked to elaborate on the improvement, Mr. Belitsky said the retailer mitigates shipping and delivery costs by leveraging its approximately 800 stores. Seventy percent of online fulfillment came from stores, including 40 percent from ship-from-store and 30 percent from in-store pickup.
Online has grown from 12 percent of overall sales at Dick’s in the 2019 second quarter to 18 percent in the current quarter. Finally, Mr. Belitsky said the company utilizes data science to fine tune promotions via personalization as well to position inventory closer to customers “so we can accelerate our transit times and reduce costs there.”
On Kroger’s first-quarter call in early June, Gary Millerchip, CFO, stated that the two key drivers of long-term digital profitability for the grocer are the cost to fill a digital order and the retail media revenue generated from a digital transaction.
Ulta officials recently told analysts on its second-quarter call that they are testing BOPIS-only promotions to encourage in-store pickup — in addition to optimizing promotional cadence and reducing shipping distance — to improve e-commerce margins.
At a panel discussion at the recent Data + AI Summit, Colleen Qiu, VP and head of data science for Albertsons Cos., said she sees online profitability improving as data science and AI elevates forecasting, automation and fulfillment.
As quoted by Winsight Grocery Business, Ms. Qiu said, “E-commerce in grocery is still single-digit as a total of the omnichannel experience. As we grow and have more volume, AI can create more efficiency in end-to-end operations for e-commerce. When e-commerce is to scale, there is the possibility it can be less costly than running a traditional brick-and-mortar store.”
- Dick’s Sporting Goods, inc (DKS) Q2 2021 Earnings Call Transcript – Motley Fool
- Kroger (KR) Q1 2021 Earnings Call Transcript – Motley Fool
- Ulta Beauty (ULTA) Q1 2021 Earnings Call Transcript – Motley Fool
- How Albertsons Is Overcoming the E-Commerce Profitability Problem – Winsight Grocery
- Can omnichannel be as profitable for retailers as in-store sales? – RetailWire
DISCUSSION QUESTIONS: What are the obvious and less obvious levers that drive e-commerce profitability for retailers? Do you see below average online margins being a short-term or long-term challenge for retailers?