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Cost to serve sales up but margin down

Sales up? Yet margin down?

Understanding cost-to-serve to boost profitability

Retail continues to be revolutionised by the rise of omnichannel. Online is the fastest growing market in the UK and Europe – according to the Centre for Retail Research – with apparel (clothing, footwear and accessories) accounting for 20% of total online sales.

And Mintel forecasts predict 13% online annual growth to 2021 against a total market average of 4%.

Figures like these should be putting a smile on the face of every CEO with an apparel online presence. However, the story behind the headlines paints a challenging picture for logistics and supply chain management. Soaring sales are in fact leading to lower margins, as retailers confront the reality of delivering fabulous service across multiple channels. It’s service that today’s consumer has not just learned to love – but expects.

eCommerce: no longer an add-on – it’s the ‘new normal’

Before multichannel and omnichannel, eCommerce largely operated in parallel with the core retail business. Today it’s part of the whole. Channels and supply chain touch points have multiplied and businesses are adjusting to deliver the systems, processes and operations the omnichannel world demands.

However, while making the most of omnichannel is a challenge in terms of increased costs, capex and overall structure, it’s an opportunity too. That’s especially the case for those businesses that can accurately measure what drives their profitability.

The key to longevity: knowing how profit is made

As retailers strive to increase sales and market share, understanding how costs build up at all functional links in the supply chain – the cost-to-serve – is fundamental for securing sustainable growth. Unlike the traditional ‘average cost’ route, this demands a granular, end-to-end approach to reveal the total cost of servicing each individual customer with a specific SKU, at a designated level of service – reflecting the true cost of handling. It should focus on:

  • Promotional impact
  • Profitability across channels
  • True costs of delivery and customer proposition
  • Impact of product purchase/flow strategy
  • Cost of non-value added tasks
  • Impact of channel split change on cost profile

Equipped with the full cost-to-serve picture, retailers are better able to manage their bottom line.

Our cost-to-serve findings

Cost to serve Sales up? Yet margin down?

Sales up? Yet margin down?

Understanding cost-to-serve to boost profitability

Cost to serve rising to the challenge

Rising to the challenge

Unpicking the complexities of managing cost-to-serve

Closing in on the cost to serve

Closing in on cost-to-serve

Knowing where expenditure is building

Pushing the right levers

Pushing the right levers

Controlling cost-to-serve to maximise profitability

Cost to serve tools

Tools that deliver impact

Using GS1 standards to manage and reduce cost-to-serve

Cost to serve downloads

Cost-to-serve resources

Read our full report and test your own numbers in our ready reckoner tool


Our findings

Download the whitepaper

White paper

Check out the full report of the cost-to-serve programme

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