The Internet is saturated with online shopping sites. A common theme is that the eCommerce site generates huge revenues yet barely turns a profit.
Walmart’s eCommerce site is on track to lose over $1B in 2019 on revenue of $20.0B. Meanwhile instore sales rose 3.5% in 2019. eBay’s second quarter 2019 income fell to 37.3% to a miniscule $0.402B on sales of $2.6B. Amazon e-Commerce has a revenue of $239B yet netprofits are only 4% of sales. Amazon relies on Amazon Web Services to cover for losses on International operations.
The furniture eTailer Wayfair reported a loss of $181.9M on sales of $2.34B in Q2 of 2019.
Only the Chinese market Alibaba and JD.COM has higher returns than the S&P 500.
Run do not walk away from investing in e-Commerce stocks.
Ever stop to think about what happens to the environment once you click on the order button or return the order to the online retailer?
Online shopping is a form of a just-in-time supply chain where orders are shipped one package at a time from the retailer’s fulfilment centre to the online shopper.
The cost to ship may include costs of transporting the good by airfreight halfway around the country, specialized warehouses, protective packaging and delivery to the shopper’s door.
The cost is paid for by investors who finance the eTailer, the eTailer’s cash reserve or the consumer.
Even Amazon’s $99 per year Prime Fees falls short of Amazon’s total shipping costs.
A bricks and mortar retailer has numerous advantages over an eTailer.
For example, a brick and mortar retailer selling a $15 kitchen tool makes money. An eTailer who shows the same item in their online store for $14 loses money. The online sale details include:
- eTailer Collects $14 plus sales taxes
- Loses one dollar in opportunity cost as an incentive to shop online
- Free shipping costs a further $10.00 to ship by Canada Post Priority Mail
- Average fulfilment cost is $3.00
- The cost of the good owed to the supplier is $7.00
- The gross income for the order is $1.00
- The eTailer loses $5.00 once the supplier is paid
- Not included are expenses for online advertising, staffing, office space and technology
Typical returns in the online world are 30% of sales for apparel and between 15% for all other goods. Retail stores on the other hand experience between 5% and 10% of all sales returned.
Apparel and beauty products returned to the eTailer cannot be resold as someone has worn the garment or opened the packaging. The return relies on the customer to package the order to prevent damage. This frustration is one reason why customers fail to meet the return by date.
So where does the returned stuff go?
It usually sits in a warehouse. The accumulation is called the “wall of shame”.
After a period of time, the goods are eventually disposed by:
- Sending the returned goods to a landfill
- Donating to charity
- Place them in the discount bin where sales are final and no free shipping
- Box the item up with other unsold items and place the box up for auction. All sales are final.
- In the case of a low value item, gift the item to the shopper rather than accept the return.
In short, online shopping is not environmentally or economically sustainable.