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Holiday Promotions Drive Down Profit Margins

As the turkey was eaten and weather turned cold, North American shoppers turned to their computers and mobile devices to seek deals. This year, more than ever before, retailers rewarded their quest.

According to the latest findings from DynamicAction’s newly released Retail Index: Holiday 2016, an analysis of more than $8 billion in consumer transactions globally, retailers turned to promotional offers, like 30% off and buy one get one free, more than ever. Thus far in 2016, orders using a promotion are up 34% versus 2015 and up 52% over the holiday season (Nov. 1-Dec. 5) versus 2015 in North America. This reliance on promotions reduced product profit margins by 19% YTD versus 2015 for North American retailers.

Other key findings from the Index, which are also visualized in a new infographic, include:

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Marketing cost and customer acquisition: Retailers saw an uptick in marketing costs throughout the year, with a 7% increase YTD versus 2015 and a 25% increase over the holiday season. These increases in marketing costs in 2016, especially during the holiday season, were positioned to drive new customer acquisition, but North American retailers failed to get the number of new shoppers they needed in the digital door. New customer acquisition was down 12% YTD and 6% over the holiday season.

Inventory effectiveness: Due to overstocks in the first half of the year, retailers held an average 12% more inventory YTD than in 2015. However, they are doing a better job of keeping merchandise on the digital shelves that shoppers are actually viewing online, with a 3% higher rate of availability for items shoppers are seeking.

Early returns indicators: Retailers will need connected data to keep a close eye on their return levels, their customer reviews and their return codes, as they are entering the highest return season of the year (post-Christmas) in a negative position. The value of returns are up 6% YTD versus 2015 and up 26% over the holiday season.

“From BOGO offers to 40% off everything, Amazon began this process of training consumers to expect a sale, but nearly every major retailer has now joined in this costly race to the bottom,” said Sarah Engel, SVP of Global Marketing for DynamicAction. “In order to cut through the clutter and answer shoppers’ emotional desire to get a good deal, promotions have become table stakes for the holiday season. However, customer-centric retailers, who will also drive profits, are those who understand their cross-organizational data and act on it quickly to provide excellent shopping experiences and promote wisely without destroying profit margin.”

DynamicAction offers a few initial tips for how retailers can achieve this balance:

  • Consider testing shipping thresholds rather than rushing to upgrade expedited shipping as gift giving deadlines get closer, realizing many shoppers’ time constraints will begin to outweigh their financial concerns.
  • Understand and promote affinity products and brands to convert sale shoppers to purchase additional full price items.
  • Rather than one-upping competitors with costly price cuts and percent-off deals, segue to promotions like a free gift with purchase that is low-cost to the retailer and has a high perceived value for a shopper to own or re-gift.

To speak with DynamicAction experts about these and other tactics retailers should be employing to be successful through the rest of the holiday season and into 2017, please email dynamicactionpr@ ketnergroup.com. Additionally, DynamicAction will be releasing its final DynamicAction Retail Index: Holiday 2016 analysis at NRF Retail’s BIG Show in January 2017 to assess post-holiday returns, inventory position and key retail objectives for 2017.

Methodology
DynamicAction’s Retail Index: Holiday 2016 is an analysis of more than $8 billion in consumer transactions globally. The transactions account for more than $6 billion in spend in North America and nearly $2 billion in Europe. The Index benchmarks retail trends in key categories from Jan. 1, 2016-Dec. 5, 2016 in comparison to the previous year. Any references to the “holiday season” indicate Nov. 1-Dec. 5, 2016 versus the previous year.

Source: DynamicAction Press Release

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Ina Steiner

Ina Steiner is co-founder and Editor of EcommerceBytes and has been reporting on ecommerce since 1999. Send news tips to ina@ecommercebytes.com.


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