Getting a Return on Post-Holiday Returns

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As a merchant, you’ve watched holiday shopping seasons come and go, and you’re well aware that in the last few years, consumer spending behavior has been through radical changes. It’s been a slow recovery since the precipitous drop in holiday spending in 2008. The excessive pre-holiday stocking of inventory and concomitant mad spending seem to be bygones.

Savvy retailer that you are, you’ve become very smart at balancing inventory with sales, and you’ve planned inventory very carefully this season. You’ve made well-informed estimates of consumers demand for the upcoming holiday season. According to industry analysts, this year’s second quarter saw the slowest inventory growth in the U.S. since 2009, and in light of that, you probably don’t have huge concerns about overstocking. Nevertheless, when you placed those orders into your suppliers’ line months ago, the world was a different place.

Which gets us to this point  one thing that hasn’t changed, and it’s almost as certain as death and taxes, is that there will still be a flurry of post-holiday returns and exchanges coming back through your doors come December 26th. How will you handle them?

As you’ve kept your stock lean and mean this year, there’s already a much more highly specialized collection of merchandise coming back than in previous years. While in prior years, these returns have always stretched your customer service goodwill to its limits, this year, and in this uncertain economy, you’re a little concerned about how to handle returned merchandise.

\"TheYou can actually turn these returns into a positive for your business, if you know what you might be expecting. Knowing what the customer wants, and even better, what they’re going to need in the future, is a data-driven advantage. Retailers now have the means to understand how customer segments shop even when they are not shopping at your particular store. And when customers stream in with their post-holiday returns and exchanges, which is now being made convenient even for shoppers who purchased their goods online, you can turn it into deeper, qualitative market research by collecting in-store data to assess what all those customers would like to see more of, or less of, or what new items they might be interested in purchasing in the future. You want to stay relevant and connected to the customer, and take out as much of the guesswork as possible.

Many shoppers who barely set foot in the stores before the holidays come out after them, in hopes of finding huge markdowns on their favorite brands. This is heightened, in part, by gift cards they’ve received during the holidays. It’s well known that customers often will spend more than the face value of their gift card—the card acts as an incentive to get them into the store and buying a few things just for themselves. With many consumers taking advantage of the “omni channel” experience—the ability to pick up or return online purchase in-store, you can create more opportunities to reach your customers and turn it into an advantage for your business. The trick is to use their return—or desire to use their gift card—as an opportunity to engage with your existing customer base, and make new customers out of shoppers who don’t usually shop in your store. So again, it is in your best interest to make the return experience as positive as the initial shopping experience—if not more so.

Broader data analysis based on customer behavior outside of your store has many additional uses, such as making holiday inventory orders less of a guessing game and more of a predictive strategy. MasterCard analysis can tell you, for example, that certain aggreg-ated samples of shoppers spend at your competitors’ stores, and on what—giving you the chance to get them to come across the street and shop at yours, drawn in by your unique offers.

It’s useful to look at categories of spend. Are there specific retail subsectors that are doing better than others? MasterCard data from the past 3 years shows that January has posted strong year over year gains. Total U.S. retail on a seasonally adjusted basis rose from +4.3% year over year in January 2010, +5.2% in January 2011, and +5.5% in January 2012—all healthy gains. So there’s a possibility of riding that wave. Looking within those numbers, however, there are strongly contrasting stories. Apparel showed strength—up +0.8% year over year in January 2010, up +2.8% year over year in January 2011, and up +4.9% in January 2012. On the other hand, Electronics showed a consistent downward trend for each of those Januaries. Clearly the Electronics sector has better Decembers than Januaries.

The lesson here is that figuring out how customer segments shop in different categories, when and even where, can be a powerful tool. Focusing on categories that are forecast to be strong—based on data showing that spending has been stronger in those sectors—allows you to build your plan around those stronger categories. Combine that with on-the-ground customer interaction, and you’re golden. On the one hand, this will enable smarter supply chain planning for future stocking and inventory. And on the other, it will simultaneously engender customer loyalty, as customers feel reached out to and heard… particularly when they see their suggestions appear on your shelves and racks. We hope that this year you were spot on with your orders, but you won’t know for certain until after December 26th and beyond. And of course there’s the wild card of the resolution of the fiscal cliff come the turn of the year—all the more reason to get a plan in place, get the data on your side, and try to get ahead of the curve. It all comes down to knowing your customer. Ultimately, by understanding your customer base better, you will be able to sell more to them, year-round—and leveraging valuable data insights can help you with that. And by the time the next holiday season comes around, you’ll be ready with just the right inventory and the right amount of it for your customers.



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