Online returns are expensive. The biggest issue in transforming the supply chain was how to mitigate online returns, which can run as high as 30 percent and are quite costly to a retailer, according to 95 percent of retailers. The high cost of online returns, particularly when the item is not carried in that store, is a concern to 85 percent of retailers. And when the product must be returned to a fulfillment center or supplier, retailers incur incremental freight costs, the possibility of shipping-related product damage, as well as a lost opportunity for a replacement sale in-store.

Cannibalization of in-store sales. Of the retailers surveyed, 75 percent said that some of their e-commerce sales are cannibalizing sales that would have otherwise been in stores. And, although e-commerce sales growth rates are often 10-15 percent greater than physical store growth rates, 70 percent of retailers are struggling to develop a profitable economic business model for e-commerce while maintaining acceptable store profitability.

Systems and infrastructure are outdated. All the retailers surveyed said that fully integrating inventory and fulfillment between the online and physical store channels would achieve the most effective customer outcome and the lowest margin risk. But more than half, 52 percent, said they do not have the systems in place to electronically view inventory in each store. Further, retailers lack the necessary processes to compete with their e-commerce-only counterparts, as only 35 percent of those surveyed had online capabilities such as vendor drop ship, or order in-store and deliver to the customer. The good news is that 60 percent of the retailers surveyed have plans to invest further in their e-commerce-related systems and improve customers' experience.

Eighty percent of the retailers surveyed identified inventory visibility and accurate assortment planning between online and physical channels to be the top two challenges in enabling fulfillment capabilities.

Only 53 percent of retailers are currently able to present customers with accurate inventory information and to fulfill the entire order at the time of online purchase.

Only half of retailers are able to ensure fulfillment from the closest location when an item is available in multiple locations and distribution centers.

More than half (55 percent) of retailers continue to have dedicated fulfillment facilities for each channel. Only 25 percent of these retailers are launching initiatives to combine these facilities to serve both channels more cost-effectively and optimize their working capital investments in inventory.