E-commerce players struggle for higher margins
E-commerce players struggle for higher margins. Part of this is information asymmetry as everyone knows what everyone is selling, making it easier for customers to look for the best deal. That loop pushes retailers to lose margins as they work to win shoppers.
The unstoppable ascent of e-commerce is spurring a corresponding decline in retailers’ profit margins, according to an analysis of six key European markets and more than 250 retailers. The trend is only set to continue with the pandemic speeding online shopping’s growth, making profits for the competitive retail industry that much harder to come by.
Over roughly the past decade, retailers’ pre-tax profit margins across the UK, Spain, Switzerland, France, Italy, and Germany have dwindled from 6.4% to 4.5%, said the study by Alvarez & Marsal, a management consultancy, in partnership with Retail Economics, a research firm focused on the UK’s retail and consumer industries. It pointed to online shopping as a major contributor. Its analysis found an inverse correlation between the increase in share of sales happening online and margins: as e-commerce penetration rises, margins fall.