In 2023, ecommerce sales surpassed $1 trillion in the United States. But many retailers and brands aren’t feeling these historic gains in their revenue growth: a whopping 60% report ongoing profitability challenges. 

Why are sales up, but profits down?  

The short answer: Customer acquisition costs are rising, fulfillment is growing more complex, and returns continue to chip away at margins. The longer answer: Operational chaos behind the scenes—in the form of manual processes, disconnected systems, and reactive workarounds—makes those problems much, much harder to fix.  

Ecommerce sales grew 8.4% last year, even as retailers and brands faced higher fulfillment costs, tighter ad budgets, and changing shopper behavior. Growth is there to capture, but turning it into profit takes focus and working smarter with today’s new pace of commerce in mind. 

 “Navigating the turbulent waters of online commerce has never been more challenging . . . The journey from attracting online traffic to converting sales is fraught with financial hurdles, making the quest for profitability a formidable challenge for today’s digital businesses.” – IDC, Evolution of Online Commerce 

Miniscule margins and manual mayhem 

Margins in ecommerce typically hover between 5–10%, well below traditional retail. These tight margins mean that every inefficiency, every oversold SKU, every listing error, and every delayed order hits your bottom line harder. Then there’s the added time spent fixing those issues, taking employees away from more valuable tasks.  

These challenges grow as you scale. According to new research by Coresight, 68% of retailers cite complicated, multi-source inventory management as a top profitability challenge. This is often what brings retailers and brands to talk to us at Rithum in the first place: their processes are breaking under the weight of promised potential as their speed of growth outpaces their support systems. And at the same time, consumers have rising expectations for speed and convenience from their digital shopping experiences. To meet the combined pressure of internal growth and consumer demands, you’ve likely stitched together manual workarounds and disconnected tools just to keep up. But what worked at $10M in sales falls apart at $50M. Instead of scaling smoothly, operations buckle under the complexity of managing dozens of channels, syncing data from multiple sources, and responding to returns, errors, and out-of-stocks in real time. As Coresight’s industry data makes clear, operational complexity is now a bigger barrier to profitability than demand. 

Need a more specific example? Let’s look at retail media networks. 

The RMN reality check

Retail media networks (RMNs)—where retailers offer technology infrastructure to sell advertising space to brands on their websites, apps, or in-store—has been dubbed by McKinsey as the next trillion-dollar market. So, it’s no wonder that 60% of retailers are investing heavily in building dedicated RMNs. With an expected ROI of 26%, these investments far surpass expectations for ROI in any other investment that retailers are banking on. 

But the Gold Rush to mine retail media advertising-driven revenue has also unearthed new chasms of inefficiency and mistrust: 65% of retailers say they don’t trust the accuracy of their own retail media reporting, citing this as one of their biggest challenges in driving profitability and attracting brand advertisers. This is a serious issue: retailers and the brands they hope to attract don’t trust the metrics driving their most ambitious monetization strategy.  

Building RMNs without a scalable plan or trust in the metrics produced is likely to erode the very margins that an investment in retail media was meant to boost. RMNs are already a steep hill to climb when built in-house: retailers face heavy upfront investments in tech, only to then compete with the market dominance of Amazon and Walmart (where nearly 2/3 of the U.S. retail media advertising dollars are spent). Lack of standardization is one of the biggest RMN challenges for over half of advertisers, according to an emarketer survey from just last January. And without transparent, standardized metrics, brands hesitate to invest in ad spending on smaller RMNs, and are left to rely on their own internal reporting (which can introduce an additional layer of uncertainty).  

Systemic challenges require systemic solutions 

RMNs are just one example of a broader pattern where retailers and brands face major operational strain but underinvest in solving it.  

For another example, let’s look at returns management. Despite being cited by 67% of retailers and 60% of brands as a top challenge, returns management remains chronically under-solutioned. Retailers rank it fourth in investment priority, while brands place it dead last, despite recognizing its growing operational cost. This gap between impact and investment highlights a major missed opportunity: streamlining returns could unlock significant margin gains, yet most ecommerce organizations have yet to treat it as a strategic priority. This is partly because returns are so daunting to tackle. But ignoring them as a revenue drain doesn’t fix the problem (we have a whole report on this coming out soon—stay tuned!). 

We’re all humans running these ecommerce sites, and it’s easy to focus on what seems smartest on paper. But by prioritizing growth at all costs, instead of looking at the factors chipping away at that very growth from the inside, you end up throwing good money after bad priorities. 

But the solution isn’t more tools . . . in this economy, no one is looking to add unnecessary overhead. Instead, it’s fewer, smarter ones based in unified automation that can target shifting pain points. 

“Third-party (3P) commerce unlocks the full potential of ecommerce promises, including efficiency, scalability, reach . . . and sustainable growth.” – IDC, Evolution of Online Commerce 

It’s tempting to view profitability challenges as operational tweaks. But these issues are systemic. And they require systemic solutions. A good place to start is to shift towards adopting technology that can help you break down silos and uncover some of those inefficiencies that are undermining profitability, whether it is gaps in inventory, returns management, content optimization, or other risks. 

Unifying operations helps align technology and business goals to focus on the true profit drains and revenue risks. Unification opportunities should be the first stop on your road to growth. By unifying operations, your entire ecommerce focus can move at one pace, so your systems don’t break even as you scale.  

Sources: 

  • Coresight Research, Unlocking Success: The Pathway to Profitability, 2024 
  • IDC, Evolution of Online Commerce: The Opportunity with 3P Marketplaces, 2024 
  • McKinsey, The State of AI in 2024 
  • McKinsey, Commerce media: The new force transforming advertising 
  • EMarketer, Advertisers have reasons for taking retail media measurement into their own hands