Why retailers should wait for returns data before celebrating Black Friday

Many UK retailers said that Black Friday was a big success with Amazon UK selling 64 items per second on the day and consequently ‘winning’ Black Friday. But is the celebration of what seems like a huge surge in profits for retailers premature?

‘Despite all the fighting in the isles on Black Friday and Cyber Monday, it’s way too early to determine the winner of this match’, said Vicky Brock, CEO of retail returns company Clear Returns. ‘Until the returns data comes in over the coming weeks–and return rates could be as high as 50 per cent–it’s too early to tell who’s “won” these big sales days’.

Visa estimated that £360, 000 would be spent per minute in online stores on Friday, but after Clear Returns’ analysis, it could be that the fuss of big discount days placed right before Christmas might not be worth it for retailers.

The problem is in the way the discounts on these days are set up that make products especially likely to be brought back.

‘All the preconditions necessary to drive up returns are in place’, said Brock. ‘You have a time sensitive offer placed alongside a sense of scarcity and panic, which appeals to over-buyers who make their selection at home post-purchase and panic buyers who get caught up in the emotion of the frenzy and will likely later return the products they did not mean to buy in the first place’.

No respite will be offered by Cyber Monday as shoppers take to their favorite online stores and scroll through for discounts on their favorite electronics, avoiding the city center crowds. Online stores typically have a far higher returns rate and a higher cost of servicing returns than physical stores.

It has been estimated that around £650m was spent online on Cyber Monday. But one-third of online sales on any ordinary shopping day are returned, so imagine the difficulty online stores could face when you take the formula of big business sales days and combine it with online buys.

Retail Week recently estimated that 600, 000 unwanted presents bought on Black Friday and Cyber Monday will be returned by shoppers after Christmas. Post-Christmas returns are a huge loss for retailers, but at least it is an expected one What is not expected are the exceptional levels of hype-driven returns that will be flowing in during the days prior to this peak trading period.

Clear Returns says that we need to not only focus on post-Christmas returns because the timing of post-Black Friday and Cyber Monday returns us also seriously problematic for retailers who are busy fulfilling production during the days leading up to Christmas.

‘I do think we’re going to see peaks in returns just before Christmas and profits will tumble as a result, especially since returns are rarely treated as a priority. Returns are the things that often get tackled only after the warehouse has dealt with outbound fulfillment, meaning that those pre-Christmas returns are just going to sit there. There will be nowhere for the returned stock to go except into January sales or clearance channels’.

Once the costs of returns have been subtracted from the products sold on Black Friday and Cyber Monday, there may be some retailers who are putting away the celebratory champagne and really reassessing the effectiveness of it all.

Posted by Lisa Monozlai

Returns bad for retailers but good for the economy?

We all know the problems that returned goods cause retailers. From cashflow through to systems inefficiencies and other burdens, we know that returns are, generally speaking, a bad thing.

However, at this, the most-returningest time of the year, I would like to propose something a little different. Yes, at a retailer level, an increase in the number of returns almost mandates heavy discounting to keep the cash flowing. However, at a macro level, I would argue that returns are simply the more efficient allocation of previously misallocated resources. Which is a good thing.

Rejoice! Rejoice! Returns are a good thing!

Let me explain. Back in 1993 Joel Waldfogel set out his theory in the American Economic Review that, as recipients of Christmas presents did not value their gifts as much as the purchaser, this meant that upon receipt, between a tenth and a third of the monetary value of Christmas presents was effectively destroyed. Put simply, for example I think £20 for that novelty jumper is a price worth paying; you think it’s rubbish and, if pushed to buy the thing yourself, you would pay at most £15 for it. The other £5 you would have spent on something better.

What has happened here concerns efficient information and knowledge. When I buy for myself, I have good knowledge of my wants. But when I buy for someone else (eg at Christmas), that knowledge is less robust, hence the errors.

Waldfogel subsequently developed this theory further and you can read more about it in the 2009 book Scroogenomics.

So, back to my Christmas jumper example. You have bought me a horrendous £20 jumper. I appreciate the gesture but fundamentally I think it’s a waste of money. When your back is turned, I decide to take this woolly monstrosity back to the store and get a £20 refund which I then spend on something which I actually want. In other words, I purchase based on superior knowledge and allocate my resources accordingly. It might be petrol, it might be a less horrible jumper, it might be giving the money to charity; the point is that it’s based on something I want , not what you might imagine I want.

Originally, I wrote this post before Christmas but it’s worth drawing your attention also to this story from the Telegraph where it notes that,

“In a stark reminder of how tough things still are for low-income families in America, McDonalds has advised workers to dig themselves “out of holiday debt” by cashing in their Christmas haul.”

In other words, make more efficient use of the value of gifts by making them liquid and spending the money on something else.

clearreturnsjumpers

I’ll throw two further economic based observations into the mix to conclude. Firstly, ‘not wanted’ is usually the most common reason for return and this is generally from people that have been buying for themselves. This suggests that imperfect information flows are operating to cause returns to a large degree.

 

The second point is that returns are externalities caused by the customer’s behaviour. An externality as defined in Wikipedia is, “a cost or benefit which affects a party who did not choose to incur that cost or benefit”. A shopper returning an item sets in motion a process that costs the retailer, or society, but not the shopper directly. Externalities (such as pollution) are usually tackled in a way that means that the cost is attached to the polluter in some way and not bourne solely by, say, the local council, often by means of a tax.

The implication of this, of course, is that if return rates are to be reduced, these externalities need to be priced into the customer’s purchases or exposed in such a way that they influence shopper behaviour.

But that is a whole other subject we’ll explore in 2014.

Guest post by Stephen Scrooge Budd, Chief Product Officer, Clear Returns

Are you targeting the right customers with your email marketing?

Recent studies revealed today indicate that customers are increasingly receptive to email marketing techniques, but are you targeting the correct groups?

A recent study by marketing firm Alchemy Worx shows that consumers are highly responsive to email marketing, estimating that for every extra monthly email sent to a pool of 5 million customers, retailers can make an additional £1.8 million. Better still, the Direct Marketing Association has found that customers have become more receptive to email marketing, especially when the email contains information about coupons or special offers.

To maximise this marketing opportunity you need to be able to identify your best customers

To maximise this marketing opportunity, however, you need to be able to identify your best customers. Not just in terms of what they buy, but what they actually keep. Your normal and high-value customers, who make up almost half of your customer base, keep the majority of their purchases and may welcome a chance to stock up on their favourite brands, especially if they know they’re being rewarded for their loyalty. Other shoppers, specifically the over-buyers who buy large baskets with the intent of returning the majority of items, may simply use special offers as an excuse to place enormous orders– which then turn into a big pile of costly returns for you to deal with.

Being able to distinguish types of customers and exclude expensive, over-buying shoppers from certain campaigns allows you to maximise profitability

Being able to distinguish these types of customers from each other and excluding those expensive, over-buying customers from certain email campaigns allows you to maximise profitability. Plus letting your high-value shoppers know you reward their loyalty by offering special perks means a better shopping experience for them. Finally, the receptiveness of customers to email interactions means customer service has the opportunity to contact these over-buyers to help direct them towards less costly options, such as exchanges or personal shopping services to help them find the products they want.

Posted by Shaylon

Predictive analytics is a top priority for retail

A recent study of more than 300 retailers released by SAP revealed that predictive analytics is almost universally seen as a competitive necessity in retail. At the same time, retailers noted that the pressure to keep up with big data has created a strain on employee knowledge and resources.

So what can retailer’s do? Installing analytics software can help, but that creates the additional task of training employees to interpret and apply predictive modelling tools to the business. This means costly and time consuming training in a highly specialist area, at the expense of these employee’s usual responsibilities.

Experts interviewed by Retail Times suggest that the increased need for predictive analytics expertise may cause businesses to selectively hire employees with knowledge of statistics and predictive analytics software and techniques. However, a shortage of specialists in this field makes this solution difficult to implement in the short term, plus these individuals may not have the necessary retail knowledge to interpret data in the most relevant manner.

Alternatively, the next step is to make use of new breeds of analytics software that turn big data into big insights, or more importantly actionable insights. Innovation in this space has led to more cloud-based, accessible tools which combine the advantages of big data with convenience, extracting the most important and relevant information – such as Clear Returns’ software.

This is one area to watch in 2014, as more retailers will continue to adopt new solutions to help them interpret their data faster and in more meaningful, actionable ways.

When ‘showrooming’ is a win-win situation

As more and more shoppers are constantly surfing the web on mobile devices, there has been an increase in what retailers and trade press are calling ‘showrooming’ – where consumers try an item in store and then check online to see if they can get a better deal elsewhere. A recent Retail Times article covered this very subject, warning retailers of the threat this behaviour poses. Many retailers are concerned this could undermine business, since their store may simply provide advertising for their lower-priced competition.

Many retailers are concerned showrooming could undermine business

However, research on shopping behaviour by the Clear Returns team shows that showrooming may actually benefit retailers who understand how their customers prefer to shop. One in every five returns can be traced to ‘overbuyers’, a subset of shoppers who like to buy a selection of items to try on at home, and then send the excess back, incurring a high cost to serve for the retailer.

Showrooming may actually benefit retailers who understand how their customers prefer to shop

Where overbuyers are involved, showrooming is a chance for retailers to create a win-win situation. Encouraging overbuyers to check out products and do their comparison in store saves on expensive shipping and returns. It also means these customers are happier with their final purchase. Also because of the cost to serve saved, this means retailers may even wish to offer incentives for certain showrooming shoppers to make their purchases now, rather than waiting to purchase online.