This week, major retailers are expected to reveal just how brutal Christmas has been for them in the slew of trading statements. HMV has already become the first casualty in what experts are predicting to be the worst Christmas since the recession of 2008.
Leading retailer Debenhams’ earnings are expected to fall by over 19 per cent in 2019 whilst even bellwether Next expects to take a hit on annual profits. Debenhams, New Look and Topshop took on aggressive discounting strategies of up to 75% in the run-up to Christmas, and although sales in November reached £7 billion, £2.4 billion worth of goods were returned. This has slashed profit margins considerably and the same pattern of returns is predicted to continue into the New Year.
More casualties and profit warnings are expected to follow in the footsteps of HMV and Greenwood. Christmas is usually the most important time of the year when retailers try to claw back 80 per cent of annual revenue in this final quarter. With the retailing business model undergoing serious disruption the pressure to maintain profitability throughout the year is greater now than ever before.
Roni Cohen, director of data science at Optimove, states: “Our data shows that discounting above 30 per cent has a negative impact on customer retention. However, struggling retailers are continuing to employ broad-stroke discounting strategies to attract customers during the fiercely competitive Christmas sales period.”
“While discounting during the holiday may attract new customers, brands must secure future engagement with these customers. Retailers should consider a personalised approach that promotes customer loyalty and increases customer lifetime value. Large volumes of sales do not always translate to profit, especially with the number of returns heavily impacting revenue figures.
“Discounting strategies must be optimised to bring value to customers and increase retention. Using predictive analytics to engage with the customer at the right time, through their preferred channel, with offers that are relevant to each one, will convert one-time buyers into life-long customers.”