MIRED IN THE SMALL PARCEL DILEMMA

Although online shopping has exploded (recent statistics shows that 2003 should see over $3.2 trillion in Internet sales worldwide from the nearly 75% of Internet users who have shopped on the Net), less than one-half of e-commerce operations make a profit on a one-item product order. Profit comes when the customer purchases more than one item, but even then it is dependent upon efficiencies in the website’s logistics and fulfillment processes.

With the right processes in place, an e-commerce website can keep the cost of receiving, storage, and picking down to less than a dollar per product. But the packing cost (labor, the carton, and packing material) and the delivery is another story. Those items run approximately $5.00 to $7.00 per product. A website also has to overcome the cost of continually shipping out small packages where the shipping sometimes is at least one-half of the overall value of the product purchased.

This high distribution cost is one reason why the Web has not progressed past the “rapidly emerging sales channel” stage, except in a few specific areas — books (where 20-50% discounts are given on newly published, popular books), high-ticket luxury items, and virtual products (music, ezines and software).

Unless the customer is shopping for a specific hard-to-find product or finds the convenience of shopping online outweighs additional shipping costs — your e-commerce business will have an uphill battle. For many products, it is much less expensive to go to the local retail store, even when the cost of gas and the time to drive and shop is factored into the equation. An e-commerce business also must overcome the immediate gratification factor — shopping at a local retail store means the product is in-hand — the customer is not forced to wait for its arrival.