With the 2023 holiday season underway and retailers looking ahead to 2024, inflation, consumer pull-back and management of returns are among the topics at the forefront of planning. 

Consumer pull-back in the post-COVID-19 era has led retailers to ramp up promotions and sales in order to shift inventory and reach profitability goals for the holiday season. Worsening inflation has significantly impacted spending for consumers globally, who have become increasingly cautious in their spending patterns. As a result, consumers are becoming more reluctant to pay additional fees, such as for returns, leading to higher costs across major retailers globally.

According to a report by the National Retail Federation (NRF), about $816 billion worth of merchandise was returned in the U.S. in 2022, leading many retailers to rethink their returns policies as returns continue to rise. As retailers navigate these headwinds this holiday season and forecast for the coming year, these are the key trends that will define retail planning in 2024.

Consumer pull-back in the post-pandemic era. Inflation has led to a pull-back in retail sales, with consumers becoming increasingly cautious about spending on goods and services. Retailers are facing a market characterized by stagnant sales, falling foot traffic and poor performance, leaving many facing excess stock and uncertainty. The NRF reported that year-over-year retail spending growth slipped from 4.2% in the first quarter to 1.6% in the second quarter of 2023.

Addressing these ongoing macroeconomic issues is a key component of how retailers are planning for the holiday season. Now more than ever, they need to better manage holiday inventories and increase targeted promotions and sales to remain competitive. Planning has a significant role in ensuring that the right resources are available for peak season trading and beyond. Data-driven planning platforms allow retailers to use advanced forecasting techniques to understand what-if sales, staffing and inventory needs, and how to streamline operations across stores, merchandising and the supply chain.

Paid returns increasing for consumers across retailers globally. With consumers pulling back on spending, fewer customers are prepared to pay for returns. According to a survey by PayPal, 87% of consumers report that free returns are an important factor when making an online purchase.

Despite this, more retailers are rolling back free returns as they grapple with the growing challenge of returns management. A report by the NRF revealed that the average rate of returns rose to 16.5% in 2022. As a result, retailers are incurring growing costs related to return postage, packaging and depreciation in the value of returned products. Retailers including American Eagle, J.Crew, Saks Fifth Avenue, H&M and Zara are just a few examples of major brands now charging customers in some areas to send back their online purchases.

When weighing the risk and benefits of implementing paid returns, it’s important for retailers to develop returns thresholds using customer behavioral and demand data. Combined, these will serve as a key feature of retail planning this holiday season and into the new year. In addition, planning to optimize assortments and channels to reflect true customer demands and trends, while integrating customer behavior considerations into new product introductions, are among the top ways for retailers to make up for lost sales without implementing paid returns.

The impact of worsening inflation. Retailers are concerned about falling consumer confidence as a result of higher prices and worsening interest rates caused by inflation. To combat the threat of continued slow consumer spending, it will be important to strike the right balance between demand planning and sensing, and to plan for specific scenarios to ensure they’re set up for a strong holiday season and success in the new year.

A poor holiday trading season typically manifests in excess inventory and markdowns. To remain competitive, retailers need to focus on three key aspects of their planning and execution:

• Scenario planning. Avoid developing sales forecasts bottom up, as this can introduce a lot of assumptions and inaccuracy, especially if using last year's sales. Instead, retailers should look at using scenarios to tightly couple profitability with demand across assortments and channels.
• Demand planning. Build consensus across supply chain, merchandising and operations with a single view of demand and profitability.
• Demand sensing. Look at ways to adapt more quickly to sales as they happen, using real-time demand signals that inform better allocation, replenishment and markdown decisions.

Effective retail planning in a period marked by worsening inflation, consumer cutbacks and increased costs for returns has become critical for retailers looking to navigate a challenging market during their busiest time of year. Retailers should address these challenges through an agile, data-led approach to intelligent planning and forecasting. By doing so, they can ensure success this holiday season and into 2024.

Matt Hopkins is global retail marketing director with Board.