Understanding the Drivers of Cost-to-Serve

Analysis of data on e-commerce sales, which the U.S. Census Bureau began tracking in 1998, highlights an inexorable trend. In the –rst reported year, e-commerce sales totaled a mere $5 billion, a negligible share at only 0.2%. Over 80% of the online sales came from nonstore retailers, that is, mail-order houses and the new web-only companies like Amazon. A decade later, however, sales had exploded 25-fold to $127 billion due to three major shifts. First, the traditional mail-order business more than doubled in size from $80 billion to nearly $200 billion. Second, virtually all of that growth came from the shift from catalog-driven sales to online sales as the mix changed from 95/5 to 55/45. ird, the traditional retailers expanded into the new channel from a mere $1 billion in 1998 to $34 billion a decade later.