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Retailers Keep Trying to Compete With Amazon. They’re Losing Money Doing It

Feb 23, 2017

Brick and mortar retailers are still losing to Amazon despite their efforts to compete in the online market.

A new report by JDA Software and PwC, as cited by CNBC, shows that only 10% of the 350 global retailers surveyed are making money via digital orders. These retailers (such as Macy's, Target, and Walmart, for example) are "plagued by high delivery costs, rising return rates, and the labor required to pull merchandise from shelves for in-store pickup,"according to CNBC. Overall, these retailers are investing billions, only to struggle to "profitably fill online orders."

The report's findings reflect the "delicate balance" that retailers must maintain while meeting customers' demands while also protecting their margins, according to CNBC. This isn't something that Amazon (amzn) has had to grapple with since the company has been able to "offset shipping costs through its Web Services platform," CNBC reports.

"Retailers now need to balance the effectiveness and profitability of the fulfillment channels they offer with customer satisfaction," Lee Gill, JDA's group vice president of global retail strategy, told CNBC. "If shoppers experience a problem with home delivery or in-store pickups, that is a lost sale —and customer— that retailers can't afford in a highly competitive market."

More than half of the retailers, 62%, told the JDA that they plan to raise the minimum spending requirement for free shipping over the next year. Another 55% also said they plan to raise the minimum order value that's required for in-store pickup, according to CNBC. Both of these are ways for retailers to "tilt the profitability scale back in their favor," CNBC reports.

However, this withdrawal isn't true for all brick and mortar retailers. Just recently, Walmart (wmt) lowered the minimum spending requirement for free shipping from $50 to $35. Amazon quickly responded by lowering its minimum spending requirement from $49 to $35 for non-Prime members.

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