DynamicAction has released its ‘Retail Index: 2019 Year in Review and 2020 Outlook’ data. It reveals the need for retailers to better analyse their customers by profitability to improve their bottom line, or risk falling into the ‘retail vortex’ and experiencing an even more challenging 2020.
The data – which is in line with the British Retail Consortium’s recent report that 2019 was the worst year on record for retail in the UK – reveals customer profitability was down an average of 9 per cent globally year on year (YoY), demonstrating that retailers are not yet adept at identifying and engaging their most profitable customers. Moreover, free shipping was up 8 per cnet globally in 2019, and up 9 per cent in the first weeks of 2020 alone, highlighting the increasing efforts of retailers to compete with retail giants like Amazon.
In addition, the data reveals the factors that make up the ‘retail vortex’ – a strengthening yearly pattern that is kicked off in the lead up to the Christmas shopping season and continues into mid-January – started earlier in 2019, resulting in retailers entering 2020 on the wrong foot. Compared to the previous year, returns were up a huge 13 per cent globally from mid-November 2019 through the first weeks of January 2020, which not only significantly impacts profits, but also drives increasing store inventory (up 5 per cent globally in 2019 YoY), creating logistical issues such as stock misallocation.
This is despite marketing cost per order also rising in 2019, with the data revealing a 9 per cent increase YoY, demonstrating how difficult retailers are finding it to attract customers (indeed, new customer acquisition is down 6 per cent globally compared to 2018). Moreover, retailers are continuing to pull the promotional lever, with overall orders using a promotion up 4 per cent globally – and a 24 per cent increase in its impact on margin in 2019 – spreading profits thin.
And specifically for European retailers, not only is the average order value (AOV) down an average of 4 per cent in 2019 versus 2018, but there has also been an average decrease of 2 per cent in the amount of items per order YoY, putting a more intense strain on the bottom line as the cost of doing business continues to increase.
“While 2019 saw bright spots for customers, with free shipping more available than ever and delivery times cut dramatically, this didn’t translate into success for retailers”, commented John Squire, CEO of DynamicAction. “In addition, initial indicators are showing that vital Christmas profits have also taken a hit, with returns in 2019 starting as early as November, kicking off the retail vortex’ of increased returns, higher marketing costs and inventory concerns.”
“Retailers must ensure they balance the rising costs of luring in customers with the significant impact of high promotions and numerous returns. The retailers who are going to survive are the ones that understand the key elements eroding their profit, allowing them to steer away from the ‘Retail Vortex’ and create strategies to understand the tactics that will truly drive profit. To achieve this, retailers in 2020 must move away from the antiquated goals of the high street’s heyday to embrace the necessities of the digital age.”
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