The service, known as Adaptive Checkout, offers biweekly and monthly payment options for purchases of more than $50 with annual percentage rates starting at zero, according to a June 7 statement. Millions of customers using Amazon.com and the Amazon mobile app already have access to the pay-over-time service, the companies said. Amazon Pay is the retailer’s payment service available to consumers on other ecommerce websites. Shoppers can use their Amazon accounts, with payment and shipping information, to shop on other websites.

More retailers are adding buy-now-pay-later services every year, and as of June 2023, 54.4% of Digital Commerce 360’s ranking of the Top 1000 online retailers offer some version of this payment type. That’s up from 45.8% of Top 1000 retailers in 2022 and 28.2% in 2020. Amazon first added Affirm in 2021. For comparison, BNPL is more common among retailers who also offer Amazon Pay, at 68.2%.

17.3% of retailers in the Top 1000 offer Amazon Pay.

The buy-now-pay-later option can increase sales and customer loyalty, and attract new customers, San Francisco-based Affirm said. The mattress-and-bedding company Casper and water-filter supplier USA Berkey Filters have already integrated Affirm’s offering within their use of Amazon Pay, according to the statement.

“Customers want more choice and flexibility when paying online,” Affirm president Libor Michalek said in the statement.

Amazon is No. 1 in the Top 1000. The database ranks North American web merchants by sales. Amazon is also No. 3 in the Digital Commerce 360 Online Marketplaces database, which ranks the 100 largest global marketplaces.

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The “click to cancel” rule would require companies to offer an easy way to cancel subscriptions and recurring memberships. Cancellation would have to be as easy as signing up. For example, the ruling would ban requiring consumers to call to cancel subscriptions that they’d signed up for online. 

The FTC’s proposed rule would apply to any retailers that sell products or services with subscriptions, automatic renewals, or similar systems. Retailers would also be required to give more information about subscription beginning and end dates and how to cancel. Retailers would also need to send annual reminders to customers for subscriptions that don’t involve physical goods.

“Some businesses too often trick consumers into paying for subscriptions they no longer want or didn’t sign up for in the first place,” FTC chair Lina Khan said in a statement. “The proposal would save consumers time and money, and businesses that continued to use subscription tricks and traps would be subject to stiff penalties.”

Subscriptions are a small but important piece of ecommerce

Subscriptions have long been promising territory for ecommerce retailers hoping to build a returning customer base. The global subscription box market reached $26.9 billion in 2022, according to Expert Market Research. The firm expects the subscription box market to reach $74.2 billion by 2028.

5.6% of retailers in the Top 1000 retailers in North America used a subscription model in 2022, according to Digital Commerce 360 data. That’s down slightly from 6.5% in 2021. 

Subscriptions are more significant in certain sectors. 36.1% of food and beverage retailers in the Top 1000 had a subscription model in 2022. That’s up from 27.8% in the previous year. In the Top 1000, 28% of health and beauty retailers had subscriptions in 2022, and 10.1% of specialty retailers. Pet supply company Chewy, for example, heavily relies on recurring subscription orders. Autoship orders made up 73% of sales in the most recent fiscal quarter, accounting for $1.98 billion of revenue. Chewy ranks No. 13 in the Top 1000.

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The legality surrounding automatic renewals is murky

The legality of automatic subscription renewals can be difficult to navigate, according to lawyer Robert Freund, who focuses on ecommerce.

Subscriptions and cancellations are governed by many laws across the U.S. The 2010 Restore Online Shoppers’ Confidence Act (ROSCA) requires retailers to provide “simple mechanisms for a consumer to stop recurring charges.” In 2021, The Federal Trade Commission issued a statement warning companies about employing “illegal dark patterns” to keep customers from canceling memberships.

Because the federal law is somewhat vague, many states have adopted their own, stricter laws. The combination of federal laws, FTC enforcement, and differing state laws result in a “patchwork of laws across the country” that are sometimes inconsistent, Freund says. “If you want to comply with every law in every state, it’s very difficult if not technically impossible.”

Automatic renewals can lead to “friendly fraud”

Retailers open themselves to friendly fraud when they automatically renew subscriptions or make them difficult to cancel, according to Chargebacks911. Chargebacks911 is a risk management software provider that helps retailers in billing disputes. 

“While no retailer wants to see their customers cancel services, having a tedious cancellation process could push customers to file a chargeback, or file a complaint with entities like the FTC — even if the retailer is fully compliant and following all payment processing guidelines that govern their merchant account,” Chargebacks911 CEO Monica Eaton told Digital Commerce 360.

Customers who forget to cancel a free trial or don’t recognize a recurring subscription charge on their bank statement can file a dispute with their bank. Retailers may then have to pay additional chargeback fees, or pay to fight the charges. Too many chargeback requests can lead to a retailer losing processing capabilities, Eaton says. 

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Retailers need to pay special care to the factors that separate shoppers from buyers.

How many fields are shoppers required to fill out? How many pages are in the checkout experience? Which payment options are offered? And if returning customers can save their information, what fraud prevention measures are in place?

81% of retailers say investing in the online shopping cart is important to improving conversion rate, according to a Digital Commerce 360 survey of 75 online retailers in February 2023.

With that, retailers should pay close attention to what types of payment methods shoppers want to pay for goods. Because if the right option isn’t there, they will abandon their carts.

Digital Commerce 360’s May Strategy Insights Report dives into three aspects of the checkout experience and includes the following in-depth articles from Digital Commerce 360 editors:  

• “Is offering cryptocurrency at checkout worth the reward for retailers?” details why and how two online retailers accept cryptocurrency as payment — and why the risky and volatile nature of the payment method is worth it for them.
• “Will AI power all of fraud management?” explores how retailers balance using artificial intelligence and manual review for fraud prevention and if retailers should eliminate human review teams in favor of only AI to combat fraud in the future.
• In “BNPL is a low-risk option for attracting new customers,” three large merchants talk about the growth of buy now, pay later and the benefits of having the payment method. The article also addresses the growing concerns about the mounting debt this type of payment may foster.
• Plus, a chart details the popular payment methods from the 2023 Top 1000 online retailers, and how that compares to a few years ago.

Compliments of: Bloomreach, Melissa

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Marcel Fairbairn, CEO, GearSource.com

“I would say I wasn’t brought up as a tech founder, I was brought up as a pretty normal, boot-strapping business guy,” says chief executive Marcel Fairbairn, who launched the business in 2002.

That approach has worked well for GearSource, which gets 70% of its orders through online searches and the remaining 30% through live customer service. Relying mostly on email and word of mouth to build business, revenue growth averaged 5% to 7% annually without acquisitions, says Fairbairn, who won’t reveal actual numbers.

“Everything we’ve done is organic,” he says. “We’ve been profitable almost every year.” The only exceptions were in 2008 in the wake of the economic crash and more recently in the fallout from the COVID-19 pandemic.

Customers range from the Super Bowl to Google and Apple

GearSource provides all manner of lighting, audio, video, staging and rigging, and related equipment to vendors servicing live entertainment venues. Ultimate users have included touring bands and mega-events such as Super Bowl half-time shows, and occasionally such large companies as Google and Apple.

More typical purchasers are companies working with nightclubs, other smaller entertainment venues, and wedding-reception halls. In one notable instance of GearSource working in what Fairbairn calls “very high-touch mode,” the country-music star Morgan Wallen needed 100 rare lighting fixtures ASAP. GearSource found them in Singapore and got them delivered to Nashville in six weeks — a quick turnaround given the logistics involved.

GearSource works both ways, providing vendors with the equipment they want and as a market for disposing of equipment no longer needed by the original buyer. In all, GearSource claims 40,000 users, including 5,000 to 6,000 active sellers offering 933 brands and between 30,000 and 60,000 products, according to Fairbairn.

“I would venture a guess that about 98% of our business is B2B,” he says.

GearSource focusing on fast growth

GearSource’s parent company, GearSource Holdings LLC, is based in Miami, but its 17 employees are fully remote. Most are in the United States, with some in Canada, Europe, and Asia.

Now GearSource aims to grow revenue by 10 to 20 times over current levels in three to five years, Fairbairn says. To do that, it’s going to ramp up search and email marketing, employ some unspecified “in-person branding opportunities,” and possibly return to trade shows, which it used in the past but hasn’t recently.

The company shifted into a higher gear recently after  a larger marketplace expressed interest in acquiring it. No deal materialized as GearSource’s would-be acquirer itself became acquisition bait. But the suitor’s interest prompted Fairbairn and his team to take a close look at their operations and business model. They soon saw untapped growth potential.

The platform clearly needed improvements. GearSource had used an in-house platform for 15 years, until 2020, when it was replaced by one developed by a third-party vendor augmented by various plug-ins and custom coding. But while the new platform had some strengths, order documentation sometimes took 30 to 40 seconds to pull up, and it had difficulty handling complex orders,  Fairbairn says.

“We were on a Frankenstein platform,” he says.

Managing a complicated marketplace

There’s no lack of complex orders on GearSource. The marketplace operates in 100 countries, thus “we’re a very complicated marketplace,” says Fairbairn. “Sixty to 70% of our transactions involve more than one currency,” he says, adding that all settle in U.S. dollars. The average transaction is $18,000. The company also has to track taxes and logistical data.

Enter New York City-based Nautical Commerce Inc., a multi-vendor marketplace platform founded in 2020. CEO and founder Ryan Lee had done stints at Apple Inc., where he worked on the Apple Pay payments service, and at Visa Inc. in new products and business development. GearSource decided to take a chance, signing on with the newbie last May and going live on Nautical’s platform in November.

So far, so good

“Speed is one of them,” he says when asked about Nautical Commerce’s advantages. Other improvements include better dashboards and reconciliation processes. “The information is more accurate, the dashboards are very clean and simple,” he says. The platform also gives GearSource customers the ability to create so-called micro-marketplaces for their own customers within the GearSource site, he says.

GearSource accepts credit cards through payment processor Stripe Inc., but most of its transactions are wire transfers processed through Nautical Commerce. GearSource charges fees to sellers based on order size and frequency.

Next up, within a couple of months, is the planned launch of a freight-brokerage subsidiary dubbed GearMoves to handle customers’ transportation and logistics needs throughout GearSource’s global footprint. Buyers will continue to be able to use sellers’ shippers or third-party shippers, but GearMoves will provide another option, says Fairbairn. Also in the works, though Fairbairn isn’t ready to give details, is a software-as-a-service (SaaS) offering.

All of this is part of a drive to keep his online market a go-to place for equipment buyers and sellers. “The show must go on is the overriding theme in our industry,” Fairbairn says.

B2B Ecommerce Handbook

This article is part of special report, B2B Ecommerce Handbook: Formulas for Digital Growth, which is available at no cost from Digital Commerce 360.

Jim Daly is a Mount Prospect, Illinois-based freelance journalist covering business and technology.

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“The pandemic has been like rocket fuel for us,” Brown said. “I’m not sure if it was people getting stimulus checks, or spending less money out and about each day.”

Wrist Mafia sells watches online, but almost exclusively through subscriptions. The subscriptions it offers are monthly, every three months, bi-annually or annually. It uses fixed dates, Brown said, meaning that billing and shipping each happen on the 15th of every month for essentially all customers. That helps avoid worrying about keeping inventory in stock and storage fees, he said.

“The product comes in and goes right back out all within a week’s time,” Brown said. “And then we’ll usually have some sort of reserves for people with billing issues, new customers and things like that. But it really just limits our overhead where we’re not just sitting on a warehouse full of watches.”

Brown said Wrist Mafia had about 2,000 subscribers at start of the pandemic. By December 2021, that shot up to 10,000 subscribers, he said. It even reached a peak of 11,000 in early 2022. But the expansion was too fast, Brown said. Acquisition costs were too much for a single quarter, and supply chain issues led to the retailer struggling with the costs of goods, shipping and gasoline, as well as shipping times.

“We pulled the brakes back” to start 2022, Brown said.

Wrist Mafia takes its time growing subscription base

The Tampa, Florida-based retailer now hovers around 6,000 subscribers, Brown said. In the first half of 2022, it slowed its advertising, regrouped and collected cash to prepare for quarters three and four.

“By the end of quarter two, we were pretty much pushing at full steam and we’re back now,” Brown said.

Wrist Mafia has begun advertising again and is now gaining between 1,000 and 2,000 subscribers a month.

However, conversion since the pandemic ended has been slower, Brown said, adding that it has “not necessarily dropped off.” Consumers are back to spending money elsewhere, he said.

Wrist Mafia also noticed shoppers were abandoning their shopping carts. It improved its conversion rate after optimizing its landing pages and improving checkout speed, Brown said.

Wrist Mafia’s previous interface, ReCharge, made shoppers leave the retailer’s Shopify-hosted site to complete the payment process, he said. ReCharge had a separate processor and application built on top of Shopify, rather than an interface that integrates directly into the platform, Brown said. Shoppers couldn’t use Shop Pay or Google Autofill forms during checkout, which decreased conversion, Brown says, without sharing specifics.

“If you have to go through six pages to check out, you’ll lose most of those customers,” he says. “We did.”

Finding a new groove

Wrist Mafia’s customers can now check out in less than 10 seconds, Brown said. That’s down from two to three minutes. And that checkout speed improved after the retailer implemented subscription-management vendor Ordergroove’s interface in September 2022. Ordergroove helped reduce the number of pages shoppers had to navigate to subscribe by three pages, Brown says.

“ReCharge has since offered a V2, but that was also a migration,” Brown said. “When we were weighing our options, it just seemed like Ordergroove made the most sense for us.”

In the first week of implementing Ordergroove’s interface, Wrist Mafia’s subscriber acquisition rate increased 15%. Within three months, Wrist Mafia grew its subscriber base 63%.

“For us, being a singular product, that’s really all we need to focus on is the customer experience while they’re on the site,” Brown said.

Lauren Lowman, vice president of marketing at Ordergroove, said the subscription interface allows consumers to easily pause or opt out of subscriptions at any time. People’s needs change sometimes, she said. Consumers might be overstocked or have subscriber fatigue, she added.

“The whole goal is that we’re a platform you join and grow with and don’t scale out of — not necessarily an entry-level one that you’re going to run into issues with after a year or two,” Lowman said.

Wrist Mafia adds prepaid subscriptions through Ordergroove

Rather than paying monthly for a subscription to Wrist Mafia’s watches, consumers can opt to prepay for a subscription period. The prepaid model accounts for more than 30% of Wrist Mafia’s revenue, Brown said.

“A lot of people from a buyer’s psychology aren’t comfortable committing to subscription,” he said. “I personally don’t really subscribe to anything myself, so I’d like to be in a position where I could be prepaid or I can try it before I buy it.”

And to acquire new subscribers, Wrist Mafia heavily discounts the first watch in the subscription, Brown said. That discount for the first watch is the best available price other than during the Cyber 5. Cyber 5 refers to the period from Black Friday through Cyber Monday.

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Rainbow Shops rank No. 710 in the Top 1000. The database is Digital Commerce 360’s ranking of the largest North American online retailers by web sales. 

Detecting fraud requires sophistication

Rainbow Apparel used to flag suspected fraudulent orders manually, Cost says. Ten years ago, the retailer was rejecting about 2% of all orders. Today, Rainbow only rejects about one-half of a percent of orders.

The goal is to only reject legitimately fraudulent orders.

“There’s no other way for us to be able to accomplish that goal,” Cost says. It requires automation and AI on a large scale.

For example, Rainbow has a large customer base in the Caribbean, but it doesn’t ship there. So a customer from Jamaica will make an order with their Jamaican billing address, but the order will ship to someone in Florida or Texas who then bulk ships several orders to the Caribbean, Cost says. That’s exactly the type of situation that can be difficult to determine if it’s fraud or not, he said. 

“AI over time has gotten so good that … we’re able to grab all that business that we can without really any downside of fraud,” Cost said.

For Rainbow, that AI expertise comes from Signifyd’s wide reach. As a vendor to 116 retailers in the Top 1000, Signifyd has access to about 450 million digital wallets, chief business officer Indy Guha said. That means it has access to data about consumer identities based on purchases from other retailers.

“We don’t have to guess if someone’s identity is breached. Once it’s compromised, that’s compromised everywhere in our network,” Guha said. 

Letting through legitimate customers is the biggest challenge

Guha and Cost emphasized the importance of allowing legitimate customers to make purchases despite fraud protections.

Non-fraudulent purchases from lower-income shoppers are more likely to face issues at checkout, Cost said. Rainbow Apparel primarily serves customers “in the lower half of the income spectrum,” he says. “Like a lot of other things in life, they get discriminated against, you know, more than most.” 

For example, sometimes a bank network will tell Rainbow to reject an order for lack of funds, when the customer actually does have money available on their credit limit, Cost said. Signifyd has relationships with those companies, and brought the problem to Cost’s attention. Every rejected order is reviewed by a member of Rainbow’s team, and can be resubmitted to Signifyd for a new check. Rainbow overrides Signifyd’s decisions only “a handful of times a week,” he said.

“Every day, it gets more expensive to acquire customers,” Cost said. “There’s no quicker way to lose a customer or squander marketing efforts than, you know, rejecting somebody’s order that’s legit because you think it’s fraud.”

Fraud more broadly

Retailers are adopting new measures to fight ecommerce fraud, according to the 2023 Global Fraud and Payments Report from the Merchants Risk Council. Just over one-third of 1,072 retailers surveyed reported instances of “friendly fraud,” meaning customers dispute seemingly legitimate purchases through their credit cards. 

Ecommerce retailers spend an average of about 10% of revenue managing payment fraud. The report says that number has been stable for the last three years. It seems to be paying off. The percentage of ecommerce revenue lost to fraud globally is down from 3.6% in 2022 to 2.9% in 2023, per the report. The order rejection rate for potential fraud was also down, from 3.4% to 2.7%. 

Fraud, and the orders rejected as potential fraud, still represent a big problem for the industry. Signifyd’s State of Fraud Report for 2023 found that for every $100 in fraudulent orders, retailers lose $207. That loss comes from the cost of processing, chargeback fees, fighting claims, and other charges. Global retailers turned down $24 billion of good orders for fear of fraud in the 2022 holiday season, according to the report.

Fraud doesn’t impact every industry equally. Signifyd found fraud attempts in 2023 are up in collectibles, luxury goods, and apparel. They were down in beauty, business supplies, and grocery.

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David Kaplan, chief operating officer, WatchBox

It is a small percentage of the retailer’s total $500 million in sales.

“Single digits,” he says, but it is an important option.

The average order value for cryptocurrency-paid orders is $80,000, Kaplan says.

“[AOV] is skewed by several high-dollar transactions,” he adds.

WatchBox’s median cryptocurrency transaction is $20,000. This “is similar to non-cryptocurrency transactions — but the average is way higher,” Kaplan says.

“We have clients that have spent seven figures in cryptocurrency with us. Then we have the normal run-of-the-mill $10,000, $20,000 or $50,000 transactions,” Kaplan says. “I woke up this morning and we had one $40,000 cryptocurrency transaction overnight.”

WatchBox sells its authenticated watches online and in retail stores.

“We lead with our website, but buying a watch is a very personal kind of sale,” Kaplan says. “We found that having locations and staff in the biggest watch markets in the world help us catalyze those markets.”

WatchBox ranks No. 264 in the Top 1000. The database is Digital Commerce 360’s ranking of North American online retailers by web sales.

What it costs WatchBox to offer cryptocurrency

Cryptocurrency processing charges are less than credit cards, but more than wire transactions.

“It’s a relatively low transaction cost for us,” Kaplan says. WatchBox uses third-party bitcoin payment services provider BitPay. BitPay allows merchants to accept payments from cryptocurrency users.

Domestic outgoing wire transfer fees range from $0-$35. International outgoing wire transfer fees fall between $35-$50, according to Bankrate.

BitPay fees for monthly transactions:

• Less than $500,000: 2% + $0.25
• $500,000 – $999,999: 1.5% + $0.25
• $1 million or more: 1% + $0.25

Fighting fraud

From a fraud standpoint, cryptocurrency is also a plus, Kaplan says.

“Because as a [retailer], you’re on the hook for fraud,” he says. Whereas, for credit card transactions, WatchBox has spent a “lot of energy” following up with credit card transactions, he says.

“If we get into a dispute with American Express, they almost always side with the client,” Kaplan says. “The transactions are reversible. With cryptocurrency, once you have the money, you have the money.”

BitPay takes on the risk. It accepts the cryptocurrency payment and deposits cash into WatchBox’s account the next day.

Much of the cryptocurrency transactions are in digital currencies like USDC, he adds. Stable coins are a type of cryptocurrency where the value of the digital asset, or, digital coin, is fixed to another form of currency. This includes currency like the U.S. dollar or a precious metal, such as gold. Stable coins are considered more likely to retain their value compared with cryptocurrencies. Other cryptocurrencies can be volatile. Value can rise and fall dramatically within any given day.

Concerns about cryptocurrency instability

The heyday of cryptocurrency in 2021 ended in 2022. A series of selloffs and the collapse and arrest of former FTX CEO Sam Bankman-Fried, as well as the collapse of Silicon Valley Bank, fueled further volatility. In March 2023, the Securities and Exchange Commission told cryptocurrency payments vendor Coinbase that it will file a lawsuit because it believes the largest U.S. cryptocurrency exchange violated investor-protection laws.

Vice president of marketing at BitPay Merrick Theobald says merchants need to do their due diligence. “Look for red flags,” he says. “If a company is based in the Bahamas, you have to ask why there instead of the U.S. or another country that has tough (cryptocurrency) regulations.”

Vendors like BitPay focus on following all laws and regulations of the U.S., “which tend to be stricter than other countries,” Theobald says.

Customers pay at checkout using their cryptocurrency wallet in BitPay. Merchants do not have to hold onto cryptocurrency which can change value unexpectedly.

Outsourcing cryptocurrency processing is necessary for WatchBox, Kaplan says. It ensures the retailer isn’t breaking any laws, including Know Your Customer (KYC). BitPay monitors anti-money-laundering processing. This is especially important because WatchBox sells portable and valuable items, Kaplan says.

“We have a lot of attention on us,” Kaplan says. “All the countries in which we operate [want] to make sure that we’re following proper money laundering [rules] to avoid sanctions.”

Wire transaction sales have not decreased, he says.

“But I’d say the majority of our cryptocurrency transactions are transactions that would have been wire transfers otherwise,” Kaplan says.

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Costs associated with websites, mobile apps and omnichannel services like in-store pickup contributed to the decline in retail profit margin, according to accounting and consulting firm Deloitte. Profit margin decreased to 6.7% in 2019 from 9.7% in 2012. That rebounded to 8.6% in 2022, helped by pandemic-fueled demand for goods over services and government stimulus checks, says Lupine Skelly, retail, wholesale and distribution research leader at Deloitte.

Lupine Skelly, retail, wholesale and distribution research leader, Deloitte

Profitability — as defined as median EBITDA [earnings before interest, taxes, depreciation and amortization] — was lowest for retailers in such non-discretionary categories as grocery, drugstores and warehouse clubs. It was highest for such discretionary categories as apparel, home goods, department stores and specialty. Retailers that sell primarily online and other direct marketers were in between.

“Online isn’t super profitable,” Skelly says. “It’s still a costly business unit for retailers.”

Higher costs played a big role in the 2012-2019 decline in retailer profitability Deloitte uncovered from an analysis of 99 publicly traded retailers, Skelly and Deloitte U.S. research leader Rodney R. Sides explained in a 2021 article in the MITSloan Management Review. A recent update based on an analysis of 86 public retailers — the number declined due to bankruptcies — showed profits bounced back during the pandemic, Skelly tells Digital Commerce 360.

However, Skelly says, retail executives Deloitte interviewed recently are concerned that profits could be pressured again in 2023 by higher costs due to inflation and consumer resistance to paying higher prices. That, she says, makes it essential that retailers focus on containing costs, including those associated with online sales.

How retailers can cut costs and boost profits

Skelly highlighted three areas where retailers can contain online-related costs:

• Free shipping: “Free shipping can’t last,” she says. “It’s getting to a breaking point.” She encourages retailers to waive shipping fees only for their best customers or as part of loyalty programs.
• New online features: Retailers should take a hard look at adding new online services that often involve fees to technology providers. As an example, she cites the growing popularity of buy now, pay later. She says BNPL services typically cost up to 50 cents per transaction plus 10% of the value of the sale. “That can add up pretty quick,” she says.
• Returns: Returns can cost retailers 15%-30% of the sale value in handling fees, which is ruinous for online retailers that only make about 5 cents in net profit for every dollar of sales, Skelly says. She says tools that help online shoppers visualize products can cut returns by 40%, and “return bars” run by vendors that take returns for many online merchants can cut costs by 20%. She also advises retailers to credit shoppers quickly for their returns as calls from consumers wondering when they will be reimbursed are common, and each call typically costs about $5.

Merchandise and selling costs for different retail categories

The costs associated with selling online show up in Deloitte’s analysis of return on assets. Profits as a percentage of invested assets kept declining for online retailers and direct marketers during the pandemic, even as they bounced back for other retail categories.

Online and direct retailers also spent the highest percentage of their revenue on selling, general and administrative expenses. That likely reflects the costs associated with operating websites, marketing online and printing catalogs.

However, those direct-to-consumer retailers on average spend the least on merchandise as a percentage of revenue.

For most retailers, the cost of goods sold as a percentage of revenue declined in 2022 from 2019, after rising during the earlier period. The exceptions were retailers in the grocery and drugstore category, a likely result of persistently high food prices in recent years.

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Overall, SG&A expenses and cost of goods sold add up to 90.5% of revenue for internet retailers and direct marketers. That’s less than the 93.9% for highly competitive, low-margin categories like grocery and drugstores. However, it’s above the 88.6% for higher-margin categories like apparel and home goods.

But in all retail categories, profits are tight, which means containing costs is a priority. And while the Deloitte analysis was based on publicly traded retailers, which tend to be larger companies, Skelly says smaller retailers likely are being squeezed even more by rising costs, given that they typically lack the technology resources that can reduce costs.

“I would assume smaller players are probably seeing this even more,” she says.

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