European retailers held steady on promotions and lessened their reliance on markdowns in 2017, but faced lower revenues and more demanding customers – especially when it comes to returns – despite spending more on marketing.
That is according to the new Retail Index: 2017 Year-in-Review and 2018 Outlook report conducted by DynamicAction, which found that orders using a promotions label rose on average by 2%, while orders using a markdown were down on an average by 27%. As a result, retailers in Europe saw sales increase by 5% last year, whereas markdowns brought margins down by 34% in 2016.
The report also reveals that in 2016, European retailers continued to increase marketing spend in an attempt to attract new customers and retain existing ones – with mixed results.
New customer orders last year dropped on an average by 2% and shoppers converting from first to second-time buyers were down by 9% in 2017, despite a 57% increase in marketing spend. while, However, despite a reduced number of new customers, first-time buyers were the most profitable segment of buyers for European retailers last year. They were on average 10% more profitable for retailers than 11+ time buyers.
When it comes to returns and shipping strategies, 2017 saw European retailers rush to keep up with consumer expectations. Returns in particular are impacting European retailers more than ever, with the value of returns raised by 33% in 2017. Whereas, the consumers’ expectation of free shipping has continued to rise, with an average of 9% growth in orders shipped free last year.
“As we analysed the results of 2017, it’s clear that in order to boost profits, maintain industry strength and satisfy customers’ true expectations, retailers and brands must recognise shifting consumer behaviour and adapt accordingly. Shoppers have come to expect discounted merchandise as the new ‘full price standard.’ If it isn’t at least 30% off, they don’t consider it a good deal,”
In Europe, the average percentage of online orders bought on promotion or markdown during the 2017 festive season was 26%, an increase over 2016, indicating that promotions are steadily climbing each year in Europe as retailers engage in traditionally American promotional efforts like Black Friday and Cyber Monday. However, North American retailers’ woes demonstrate that chasing them down the promotional path is not the way to protect margins. Moving forward in 2018, it’s essential that European retailers reconsider which customers are truly their ‘best customers’ through the lens of profitability, balance inventory levels to focus on those products customers are actually viewing and purchasing, and develop strategies for effective markdowns.
Increasing retail returns and consumers’ expectation for free shipping offerings result in costly logistics advancements and shifted retail economics. A core driver of retail success in 2018 will be leveraging connected customer data to understand who the most profitable customers are, what their true desires are and adjusting product offerings and promotions accordingly.”
– Michael Patterson, managing director EMEA at DynamicAction.
