Cost-to-serve is defined as the total supply chain cost from origin to destination, it incorporates such factors as inventory stocking, packaging and re-packaging, shipping, and returns processing.

So explains Tim Laseter, Elliot Rabinovich, and Angela Huang in S+B. I’d say products that have poor cost-to-serve profiles, like shoes, just haven’t redesigned their businesses to take advantage of online opportunities. For example, if shoe return rates are poor for fit reasons, more consideration needs to be put into consistent fit. This was never necessary before because we always bought shoes in a place we could try them on. Consumers may show loyalty to a particular brand, style, and even model given the possible price and convenience advantages of ordering online. Shoe manufacturers may find advantages in not redesigning every model every season, making it easier for consumers to re-order a shoe that fits, and profiting both in lower development costs and higher loyalty rates.

An example of redesigning the business to take advantage of e-commerce is Design Within Reach, which has showrooms to market items that are hard to evaluate online, and an online store and paper catalog for everything else.