As coronavirus-wary shoppers opt for online purchases, retailers pay the price

Online sales may be a saving grace for pandemic-battered retailers with fewer shoppers in their stores. But many retailers, from department store chain Macy’s Inc to essential retailer Target Corp, are grappling with higher expenses related to e-commerce.

Retailers often use the more lucrative in-store sales to subsidize hefty e-commerce costs, ranging from marketing to fulfillment and shipping. Companies don’t usually break out those expenses, which of late have been overshadowed by massive write-downs for unsold inventory and lower online profits.

Margins for the hardest-hit nonessential retailers - including mall-based clothing chains – on average are this year likely to be about half what they were in 2019, according to credit ratings agency S&P Global. The shift to e-commerce probably erased a couple of percentage points from company margins, Sarah Wyeth, senior director for retail and restaurants said.

When it comes to online sales, “retailers have always given away too much margin,” said Neil Saunders, managing director at GlobalData Retail. “Now that more stores are closed and online penetration is higher, losses have exploded.” Historically, sales in stores accounted for more than 80 percent of all retail sales in the United States, according to eMarketer. E-commerce as a percentage of retail sales, excluding gas and auto, zoomed to 22.9 percent in the second quarter after the pandemic accelerated the shift to online shopping, said Andrew Lipsman, principal analyst at that research firm.