As Cyber Sales Boom, Profits Decline
Data from DynamicAction shows a return of the
“retail vortex,” which means eroding profitability for retailers.
The data science team at retail analytics firm DynamicAction dug into online sales and, for a second year, found eroding profits — despite record results.
As analysts are forecasting online sales to see between 16 and 19 percent year- over-year growth this holiday shopping season, DynamicAction said its retail index revealed a “decrease in profit per customer,” which is “setting retailers up for a formidable challenge in 2020.”
The report showed that profitability over the weeks of Black Friday and Cyber Monday “was down 4 percent compared to the same holiday period in 2018.”
Authors of the report said the causes for the decrease “include returns, which have already soared 29 percent in the weeks of Black Friday and Cyber Monday compared to the same period in 2018.”
Soaring returns are only part of the problem, though. DynamicAction said retailers also face a 33 percent increase in “marketing costs per order over the same two weeks.” The researchers said this is a “clear indicator that, despite holiday sales growth, retailers have yet to deal with the true financial impact of the season.”
In the post-holiday period last year, retailers were saddled by an overwhelming number of returns, DynamicAction said, adding that it created a “retail vortex.” Profits declined as a result, and this year is on track to see the same — or even worse of an impact.
Looking at the monthly data, authors said “retailers have not yet seen a single month this year in which overall profit per order from an average customer for the month has increased.” The average customer refers to shoppers who make somewhere between two and 10 purchases each month.
“Retailers fared slightly better with first-time customers, where profit per order improved 4 percent in November — the only month in which there was a gain all year,” DynamicAction noted.
Other findings from DynamicAction’s research include that North American retailers lured in 6 percent “fewer new customers despite spending 33 percent more on marketing per order.”
Moreover, shoppers are continuing to “feed their appetite for free shipping with an average increase of 9 percent in free shipping over the two holiday weeks,” the firm said, adding that even with the customer savings in shipping, “shoppers spent 3 percent less on orders overall during that time period as compared to last year.”