Omnichannel and E-Commerce Economics for Retailers

Introduction

In a store, the shopper does much of the retailer's work. They walk the aisles, pick the products off the shelf, carry them to the checkout and take them home. When the same shopper orders online, the retailer has to do all of that itself, and pay someone to deliver the order and handle any return. For a store-based retailer, an online sale is often not new revenue at a better margin; it is a sale it would have made anyway, now carrying fulfillment costs it never had before.

That is why e-commerce took the largest retailers years to make profitable. Walmart's chief financial officer said its US and Sam's Club e-commerce businesses were each profitable in the first quarter of its 2026 fiscal year, with growth led by store-fulfilled pickup and delivery and marketplace sales, according to Digital Commerce 360. This article explains why online orders cost more, how the main omnichannel fulfillment methods compare and what turns retail e-commerce into a profitable channel.

The cost difference starts with who does the labor. In a store sale, the retailer pays for stocking shelves and running the checkout. In an online sale, it also pays for picking, packing and, often, the last mile to the shopper's door, plus the cost of more frequent returns. The product margin is the same; the cost of getting the product to the customer is not. Those extra costs land in the labor, distribution and freight lines of the retail P&L, where a retailer has few points of margin to spare.

The comparison also explains a common reporting puzzle. A retailer whose online sales grow quickly can see its operating margin fall even as total sales rise, because the channel mix is shifting from the cheapest way to serve a customer to more expensive ones.

Retailers use several ways to fill online orders, and most large chains run all of them. Each one balances fulfillment cost, delivery speed and how much of the work the shopper still does.

Store pickup

Buy Online, Pick Up in Store (BOPIS)

A fulfillment method in which a shopper orders online and collects the order at a store, either inside or at the curb. The retailer picks the items from store inventory, so no parcel delivery is needed, and many shoppers buy extra items when they arrive.

Pickup is the cheapest online model for a store-based retailer because the shopper still covers the last mile. It also brings shoppers back to the store, where add-on purchases can lift the basket. Target's stores fulfill more than 97% of its sales, and its same-day services (Drive Up, in-store pickup and same-day delivery) generated more than $14 billion of sales in its 2025 fiscal year, about two-thirds of its digital sales, according to Digital Commerce 360.

Ship-from-store and same-day delivery

When a retailer uses its stores as small warehouses, it can reach shoppers faster and cut the distance each parcel travels.

Ship-from-Store

A fulfillment method in which online orders are picked from a store's inventory and shipped to the customer by parcel carrier, rather than from a distribution center. It shortens delivery distances and uses stock already in stores, but depends on accurate store inventory records.

Ship-from-store puts stock already sitting in a store to work, which helps sell through slow-moving items and reduces markdowns. Its weakness is inventory accuracy: if the store's records show an item that is not on the shelf, the order fails, so retailers that run ship-from-store at scale invest heavily in inventory systems.

Same-day delivery from stores adds speed at a higher cost, usually through gig drivers or delivery partners. Retailers offset the cost with delivery fees and paid memberships that include free delivery, and route density matters: a driver delivering several orders on one route costs far less per order than one delivering a single basket.

Dark stores and micro-fulfillment

Where online volume is high enough, retailers build sites that serve only online orders. A dark store looks like a store inside but is closed to shoppers and laid out for fast picking; a micro-fulfillment center is a small automated warehouse, often attached to the back of an existing store, that picks fast-moving items with robots. Both cut picking costs and speed up orders, but they add fixed costs that pay off only at high order volumes. Bankers treat them like any other store investment, asking what volume each site needs to break even and how quickly it gets there.

Returns

Online orders come back more often than store purchases, particularly in apparel and home goods, and return rates are one of the biggest differences between channels. Each return carries shipping, inspection, repackaging and sometimes a markdown or write-off. Store-based retailers have one advantage: they can let online shoppers return items to a store, which avoids return shipping, puts the item straight back on the shelf and brings the shopper into the store. Reverse logistics, the handling of returned goods, is therefore a real part of e-commerce economics and a common diligence item.

Retailers that make e-commerce pay combine several levers rather than relying on one:

The last two are the most powerful because they carry high margins. A marketplace earns a take rate on other sellers' sales, a model explained from the platform side in the TMT guide's marketplace economics: GMV and take rate, and online traffic creates the audience for retail media, covered in retail media, loyalty and card income for retailers. Walmart's results show the combination at work: its e-commerce turned profitable as store-fulfilled delivery, marketplace sales, advertising and membership income all grew together.

Cannibalization and incremental sales

The hardest question in omnichannel economics is how much online demand is new. An order that replaces a store visit adds fulfillment cost without adding sales; an order from a shopper who would otherwise have bought from a competitor adds both. Retailers estimate the incremental share by comparing the spending of customers who shop both online and in stores with those who use only one channel, and they generally find that multichannel shoppers spend more. Bankers test those claims, since they decide whether e-commerce growth is adding profit or simply moving it into a more expensive channel.

How store-based retailers compare with pure online sellers is set out in the TMT guide's e-commerce business models, and the brand-side view of selling direct and through Amazon is covered in DTC and Amazon: how brands sell direct and online. The store-based retailer's edge is that it already owns the inventory, the locations and the customer relationships; its challenge is to add online convenience without giving away the margin that stores earn.

Omnichannel performance is hard to read from headline numbers, so bankers rebuild it from operating data:

These measures also affect how a retailer reports comparable sales, since most retailers include online sales in comps, so a shift to digital can lift comps while squeezing margin. The interaction with the store base is covered in store fleet and real estate decisions for retailers, since stores that double as fulfillment hubs change the case for opening or closing them.

For a coverage banker, the core omnichannel question is simple to state and hard to answer: does each online order earn close to what the same sale would have earned in a store? Retailers that can answer yes, through pickup, density, fees and high-margin income, can grow online without eroding margin; those that cannot are growing sales at the expense of profit.