Markdowns and promotions have had a 9 percent negative impact on retail profit, primarily as a result of markdowns. Markdowns have reduced margins by 8.2 percent compared to 2014, and promotions have reduced retail margins by another 8 percent.
“Retailers are finding themselves trapped in the cycle of promotions and markdowns, and are more discount-heavy as we head into the 2015 holiday season,” said John Squire, CEO, DynamicAction, a retail data firm. “Although these promotions are great for consumers’ wallets, the full price sell-through rate and retail profitability are suffering, which will have a negative impact on the ill-prepared retailers and the economy if the trend continues throughout this holiday season.”
The inaugural Holiday Retail Index also discovered that retailers continue to underestimate the impact of holiday demand on warehouse operations. While most retailers have a goal to ship within a day, the data suggests that orders will climb to roughly 1.6 days to ship during mid-December. Despite the expectation to receive orders in time for the holidays, consumers are extremely price-conscious when it comes to shipping. Willingness to pay for express shipping is down, as evidenced by express shipping decreasing 25 percent compared to this time last year.
Free shipping is also becoming an expectation. Customers are taking more advantage of free shipping, with the percentage of free shipping orders up 4 percent year over year.
Data revealed that returns are already up 9.3 percent over 2014 heading into the holidays. Even worse, the amount of profit being returned has jumped 19 percent, suggesting that customers are returning the more profitable items at a higher rate.
Return rates clearly spike in the days after Christmas, but retailers also must prepare for the second week in January, and the steady stream of returns and resale happening through mid-February.
Additional data from the index looking at customer orders showed that both units per order and average order value (AOV) are down. Units per order are down 4.7 percent and AOV is down 14.2 percent.
“Retailers are facing a steeper uphill battle this holiday season, but it’s not too late to curb the impact and reverse 2015 holiday losses,” said Squire. “Retailers and brands can use this data to make smart, actionable decisions while finalizing promotional and pricing strategies for the remainder of the 2015 holiday shopping season.”
The DynamicAction Holiday Retail Index 2015 is an analysis of more than $5bn in consumer transactions during the holiday 2015 time period. It benchmarks retail trends in key categories from October 2015-February 2016 in comparison to the previous year.
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