With the back-to-school shopping season reaching its peak, retailers are already prepping for the holiday season. To help inform retail strategies, DynamicAction crunched data from last year and in a “deep industry analysis,” revealed “the mounting pressures of post-Christmas consumer behavior.”
Due to several factors, retailers are “at risk of falling into a ‘Retail Vortex’ of increased costs, soaring returns and inventory concerns in [the first quarter], impacting important seasonal profits.”
Researchers at DynamicAction, which is a retail analytics guidance platform, said the concerns facing retailers and brands this year include earlier and a higher number of returns. They noted that holiday returns begin on Dec. 25. Last season, the number of returns were 31 percent higher on a year-over-year basis — and this year could be even higher.
The data also showed a 5 percent increase in marketing expenditures year-over-year as well as an increase in “free shipping” offers. Meanwhile, average order values have declined, all of which has a negative impact on sales and margins.
Authors of the report said a “strengthening yearly pattern that occurs between Christmas and mid-January,” — The “Retail Vortex” — was identified from more than $12.3 billion worth of online consumer transactions, globally. “The analysis revealed four forces that combined to create the Retail Vortex: increased returns, high marketing spend, more free shipping and lower average order value.”
The report found that earlier returns “significantly” impact profits, and the increase in returns resulted “in more products coming into store inventory, creating logistical issues such as stock misallocation.” Coupled with lower average order values and a higher marketing spend, the result left retailers and brands in a deep hole.
John Squire, chief executive officer at DynamicAction, said, “Striking a balance between convenience for consumers and impact to the bottom line is essential. Retail is only getting more complex, especially during the crucial selling moments of the holiday season, and retailers need to empower themselves with valuable insight from their data to ensure swift action is taken before the opportunity passes them by.”
Squire said navigating the headwinds of the Retail Vortex “will take more than looking at top-level metrics. To truly avoid being disrupted by the Vortex, retailers and brands must go deeper to analyze their customers by profitability and deliver corresponding discount strategies that will lead to an improved bottom line.”
The ceo said that as planning for holiday shopping gears up, “retailers must get control of their business strategies now to avoid the Retail Vortex that could impact their revenues in the first quarter.”
“All too often the focus for retailers is on pre-holiday sales, and post-holiday returns are overlooked when calculating profit — yet have a significant impact on the business, whether that’s through lost revenues or misplaced stock,” he added.