An article in The Economist looks at the cost of e-commerce for fast fashion retailers using the example of Inditex. Basically, the store model is described as a “giant bundle of fixed costs” including rent and staff and which turns profitable only when enough merchandise is sold through them. Websites and warehouses cost less to run but because the retailer pays for each delivery, the more is sold, the more the variable costs increase. On paper, the shift online looks appealing, if only because the online channel has significantly lower wages and rent expenses. However, if more customers choose to shop online rather than in store, then the retailer incurs higher variable costs while still having to cover the fixed costs of stores.

Inditex has been reducing store numbers and has set itself a target of raising the share of online sales from 14% in 2019 to 25% by 2022. It has apparently managed to keep operating margins at 17%, while those of, for example, Fast Retailing, parent of Uniqlo the only rival to match Inditex’s sales growth, is a third lower. Considerable investment is being made to allow stores and website to work seamlessly together, in particular with technology such as RFID to locate inventory and fulfil orders either from stores or from a warehouse.

Another troublesome cost of online sales is the high return rate which can be as high as 30%. However, encouraging customers to return orders to stores reduces that cost as well as opening up the possibility of further sales. The item also has a higher chance of being sold again when returned to a store. In the case of Zara, at least, a lower number of stores will mean less visibility for a brand which spends practically nothing on advertising.

For the sustainable shopper, what should be the choice between bricks and clicks? A piece in the Financial Times looks for answers at analysis by fund manager General Investment Management. It makes the point that, as retailers make the last mile delivery more efficient, online will gain the edge. However, this is not guaranteed. Indeed, remembering the economies of scale for stores mentioned above, while store shopping would normally generate higher emissions than online, the emissions per item generated by a larger store shopping trip would fall below those online. Customer transport emissions can vary tremendously according to whether the trip is made by car, on foot or public transport, for example.

Still, online shopping will generally be a greener option than driving to the store for just a couple of items. Somebody who does that three times a week could save about 2kg of carbon a week even by switching to an averagely efficient e-retailer.  The article concludes that “bundling orders, minimising returns and avoiding rush shipments would all make a difference. As, of course, would buying less”.

Imagine that, during the recent pandemic, retailers offered customers to shop in store remotely using selling associates, then sent the purchases within the day by personalised delivery (or even organised kerbside pickup by the customer travelling to the store by car), and probably had to deal with a higher return rate than normal for a store sale, then those retailers were accumulating all the most costly options both in terms of their own expenses and in terms of emissions and damage to the environment.

How Inditex is refashioning its business model (The Economist)

Carbon counter delivery van vs shopping trip (Financial Times)