Full-year data from DynamicAction on online sales and promotions showed that while retailers and brands were much more disciplined about offering promotions, when they did, the offers were deep, which impacted gross margins. And while inventory levels were managed better than in prior years, expectations from consumers for free shipping and returns is also eroding margins.
Researchers at the firm said orders placed online from consumers that used a promotion were “down slightly in 2018 versus 2017.” And while there were spikes “during ‘micro’ holidays throughout the year, North American retailers clearly showed some resolve this holiday season. In the weeks following Cyber Monday through the end of the year, promotions were down 11 percent compared to 2017.”
Authors of the report added that promotions offered in 2018 “were deeper than 2017 and despite fewer orders using a promotion, the overall impact to margin from promotions increased 4 percent higher versus last year.” DynamicAction said shoppers embraced markdown on specific products, and that orders using a markdown “increased 3 percent versus last year, driving a further impact to margins with an 11 percent negative [impact] in 2018.”
“The data suggests retailers recognized that big strategic changes were necessary in 2018 and they followed through with fewer promotions, improved inventory value and overall increased profitability,” said John Squire, chief executive officer of DynamicAction. “The data clearly demonstrates that retailers are walking in the right direction, but they are not entirely out of the woods. Game-changing strategic shifts are still critical. In sum, the index data sets the stage for retailers to make their case for building a strategy anchored in customer lifetime value and customer profitability.”
It’s an approach that might prove to be challenging for retailers and brands since it requires reprogramming consumers in regard to notions about free shipping and returns. DynamicAction noted in the report that free shipping “continues to be ‘table stakes’ for consumers and North American retailers are answering the call — but at the detriment of their margins.”
“With free shipping increasing by nearly 13 percent year-over-year in 2018 and margins per order being squeezed by reduced prices, retailers and brands will need to pay particular attention to higher logistics costs that could further reduce profitability,” authors of the report said. “There were only been four weeks in 2018 where free shipping rates were below the average for 2017. Of particular interest: When Amazon and Target announced, ‘free shipping for everyone,’ the increase in free shipping across the board for retailers spiked 18 percent that week [week of Nov. 5] versus that same time period in 2017.”
Regarding inventory, Squire described it as a bright spot for retailers. “Not only is unsold inventory down 43 percent for North American retailers in 2018, but coupled with a 22 percent increased inventory value, it appears retailers and brands are more accurately forecasting the proper assortment of offerings to satisfy their customers.”
Also, products that shoppers sought online were readily available. “Inventory availability” trended up 2 percent year-over-year through Halloween before increasing to 3 percent on average during the holiday shopping season.