Index: Promotional intensity causing Q1 profit pressures

Retailers’ margins could be under pressure during the first quarter as a new index tracking promotional selling shows full price sales have declined and promotional activity has increased.

Retailers are relying heavily on discounts and promotions so for this year, continuing the trend from the 2015 holiday season of pulling the promotional lever far too often, according an analysis of $5 billion in consumer transactions from January through March conducted by DynamicAction.

According to the DynamicAction Retail Index: Spring 2016, released at the inaugural Shoptalk conference in Las Vegas, retailers did the following in the first quarter:

  • Retailers sold less at full price in Q1 2016 vs. a year ago, with full-price sales down 4% for the quarter and orders using a promotion up 63%. March was an especially promotional month, with an 86% increase in orders using promotions compared to 2015.
  • Retailers found it harder to convert first-time buyers into second-time buyers, with those conversions down 6% compared to last year.
  • While revenues were up 10% in the first quarter compared to 2015, retailers’ ability to control profit has been unstable in early 2016. Retail profits were up an average 5.2%, however most gains occurred in January, with increasing volatility in February and March.

“The antiquated strategy of retailers relying exclusively on their promotional calendars to run their operations has fostered an ingrained need for discounts by consumers, who are increasingly being trained to wait for promotions or discounts prior to making a purchase,” said John Squire, CEO and co-founder of DynamicAction. “The very best retailers are preparing right now to answer customers’ needs and beat shareholders’ expectations during the holiday season of 2016, by focusing on curbing the promotional addiction and utilizing their full data set to better manage inventory and operations.”

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