After the Holiday Rush, the Next Challenge for Retailers?

Record Levels of Returns.

Following record holiday sales, period retailers will be forced to deal with increased returns and slow growth. Here’s the best way to prepare.

Already the retail landscape in 2023 is a challenge that businesses should take advantage of to solve. After record holiday online sales, which hit over $20 billion on Black Friday and Cyber Monday combined, retailers will have to prepare for the inevitable return season–and “the higher the sales, the higher the returns,” says Vikram Bhandari, founder, and CEO of the Santa Clara, California-headquartered management and technology consulting firm Yantra. “Return percentages are also going to be higher than last year.” The last time, the rate of returns on holiday purchases was fourteen percent Bhandari anticipates returns between 21 and 25 percent for this year. This could set a record.

As returns accelerate, sales are likely to slow. Although discount prices helped boost retail sales during the holiday season beginning in October, it’s still being determined how much consumers will limit their discretionary spending in the face of rising inflation rates during the initial quarter of 2023. With this potential slowdown to be considered, retail stores must concentrate on improving their operations, enhancing their profits amid a period when sales aren’t as robust. The investment in technology that allows for maximizing inventory and boosts the average lifetime value of customers is an expense that pays over time and will enable retailers to keep their businesses going regardless of a drop in demand, according to Soumya Srinagesh Tulloss, director of sales for the Ottowa-owned the e-commerce platform Shopify’s fulfillment network.

At the time, the holiday season continues to be in full force. Therefore, there’s no better moment for retailers to make intelligent moves to remain in the game for the remainder of this year and into the future. Here’s how.

Increase efficiency of returns

According to Spencer Kieboom, founder and CEO of the Atlanta-based B2B return optimization platform Pollen Returns, businesses can only do something right now to prepare better for January’s return. However, investing in the right technology can help improve the quality of a company’s return process for the future, which will save money and lead to better customer service: Pollen, for instance, lets brands facilitate returns with efficiency so that they can replenish their stocks faster, reducing on the usual cost of returning.

If they’re confronted with the issue of having too much stock or having limited capacity to handle returns, retailers need to consider the expense of accepting returns. It might not be the best option for a company to take in lower-priced items like accessories, which aren’t likely to be sold after they’re reprocessed. According to Bhandari: “Inventory is not going to move at that point–it will be sold lower than buying cost in some cases.” In these situations, it might be more economically sustainable to let businesses refund purchases without customers returning the products.

For example, certain companies such as H&M and J.Crew ultimately prevent returns by charging shipping charges for returns or restocking costs. Bhandari warns that these policies could make purchases more difficult initially and lead customers to rivals.

After the Holiday Rush, the Next Challenge for Retailers business
After the Holiday Rush, the Next Challenge for Retailers business

Brands can also turn returns into a “sale moment,” says Tulloss. They can achieve this by providing a seamless experience when they exchange their items or by offering incentives such as submitting a 10% bonus to customers who select store credit over a full refund.

Double down on existing customers

Many retailers expect lower sales for the first two quarters of this year, according to Bhandari, mainly since the holiday season is a time of price-priced goods in the face of the rising cost of living. “It’s harder than ever to acquire new customers,” Tulloss states. “So you must take your customers and bear hug them for all their worth to make your overall economics thrive.”

Many retailers offer bundle deals during the Christmas season to clear extra inventory. This tactic could also aid in driving sales in times when customers are reluctant to shop, according to her. It’s because they provide a higher value perception, and, Tulloss adds, “the more you can get someone to adopt a few of your products upfront, the more likely is they’ll see the value of your business and buy more products over time.”

Optimizing omnichannel retailing for the coming year

After years of erratic supply chains, Retailers are starting to recognize the importance of omnichannel retailing that integrates all various selling channels (like direct-to-consumer, in-store, and wholesale) to provide greater inventory flexibility. With the help of technology that provides retailers with complete visibility into their inventory and multi-node fulfillment, as well as distribution centers that make the transportation of items more efficient, businesses can more effectively manage insufficient inventory and surpluses, according to Patrick Lowe, area vice for business development at Irving Texas-based e-commerce fulfillment service PFS. This strategy — and less the idea of overstocking, which businesses adopted during the peak delay in supply chain operations of the pandemic –allows retailers to be more agile and responsive to customers’ needs, according to PFS business strategist Kamran Iqbal. “Having a decentralized stock means you don’t have to fly things all over the country.” It’s not as often as you would have to do in a single distribution center.

This flexibility allows brands to be responsive to sudden big-ticket opportunities or viral events, according to Tulloss, that will better help them succeed in 2023. “Companies that are treating data as their secret sauce for logistics and marrying the flexibility of software with the physical world are the ones who are winning.” They’ll be winning even more in the coming year.

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