Retail inventory management comes up on virtually all corporate earnings reports. Now retailers have something to crow about.
The DynamicAction Retail Index: 2018 Year in Review & 2019 Outlook reveals that retailers in North America finally are getting a handle on their unsold stock levels, which plummeted 43 percent year over year from 2017 to 2018 while increasing in value by 22 percent.
What’s more, the products that shoppers viewed online had an in-stock availability 2 percent higher in 2018 than the prior year, DynamicAction said in the report, and the trend is continuing in these first few weeks of 2019, with availability currently up 3 percent. It’s an indication that assortment planning activities and forecasting tools are making a meaningful difference in stock-keeping operations, the company added.
The Index analyzes more than $12.3 billion in e-commerce transactions, including $5.7 billion from North American retailers, across apparel, home goods and general merchandise from Jan. 1, 2018 through Jan. 14, 2019.
Additional highlights from the Index point to a mixed bag for retail promotions in the past year. Though retailers relied less on promotional activities to attract customers, discounts took a heavier toll on margins, DynamicAction said. The number of orders tied to a promotion dropped 2 percent in 2018 from the prior year but margins on these transactions shrank 4 percent. Moreover, shoppers liked seeing discounts on specific items, as purchases of marked-down merchandise rose 3 percent.
However, retailers reined in the markdowns during the holidays, according to DynamicAction, which found that transactions linked to a promotion declined 2 percent throughout the season. Overall, retailers offered 11 percent fewer promotions from Cyber Week through the close of the year.
As January gets underway, promotions already are ticking upward 14 percent relative to the prior year, the Index shows, dragging margins down 6 percent. “Moving forward North American retailers will need to use promotions strategically, while keeping a close eye on profitability,” DynamicAction said.
Findings from the Index call into question the conventional wisdom surrounding the value of repeat customers. In 2018 retailers upped their marketing spend by 32 percent but attracted 6 percent fewer new customers compared with the prior year. Of those, 3 percent fewer graduated from first-time customers to repeat purchasers, DynamicAction said.
“What adds a layer of complexity is the antiquated notion that the 11+ ‘loyal’ purchaser is the most profitable,” the report explained. “Typically, those savvy shoppers have learned to spend only on promotions and markdowns, utilize free shipping and return often, making them the least profitable in 2018, with a profitability decreased of 8 percent 2018 vs. 2017.”
Free shipping continues to be the new normal in e-commerce, as 13 percent more orders were shipped at no added cost to the customer in 2018 versus 2017. In the first few weeks of 2019, free-shipping orders already are 9 percent higher year over year, DynamicAction said.
Returns, the flip side of the shipping coin, continue to plague retail profits. After jumping 34 percent from 2016 to 2017, the value of returned merchandise climbed another 4 percent in 2018. The holidays drove the expected spike in returns volume, accounting for 33 percent higher returns in the last week of December 2018 compared to the prior-year period. DynamicAction said that trend spilled over into the new year, with returns up 26 percent for the inaugural two weeks of January.
“Forward thinking retailers recognized that big strategic shifts were necessary in 2018 and they followed through with fewer promotions and improved inventory curation,” DynamicAction CEO John Squire said. “While the data clearly demonstrates that retailers are walking in the right direction, they are not entirely out of the woods.
“The industry is only getting more complex and digital transformation across the organization has gone from ‘nice to have’ to critical,” Squire continued. “2019 is the year for retailers to build a strategy anchored in their customer’s lifetime value and business profitability in order to truly succeed.”