Cost to serve

Online gross margin is often close to store gross margin, and is sometimes better because there is less markdown pressure on slow moving stock held centrally, though price transparency online pushes the other way. The economic difference between the channels therefore sits below gross profit rather than inside it, in the cost of getting the order to the customer and handling what comes back.

In apparel the return rate is usually the number that decides whether an order made a profit at all. A returned item carries outbound freight, inbound freight, handling, and frequently a markdown before it is resaleable, so a high return category can turn a healthy gross margin into a negative contribution one order at a time.

This explains a pattern that otherwise looks contradictory. A retailer can grow online quickly, dilute its group EBITDA margin percentage, and still be adding absolute profit, because the channel contributes at a lower percentage rate than the store average rather than at a negative one. Falling group margin is evidence about mix, not automatically evidence about profitability.

The disclosure worth asking for is contribution by channel rather than revenue by channel. Where a company will not give it, the absence is informative, and the second best route is the trajectory of distribution and fulfilment costs against online sales growth.