The changing of the seasons can mean that ecommerce merchants face an excess of old stock that is no longer of priority to shoppers. This causes problems for a number of reasons- not only is cash flow tied up by these products but they also take up space in your storage (and on your site). All of this means they can effectively be costing you money and slowing you down your ability to move forward.
Suggesting a January sale is hardly groundbreaking but discounting old stock is a great way to claw back some extra cash, make room for new items and drive traffic to your store (something we’ll look at in more detail later). And this is exactly why so many merchants choose to partake in this trend. But how you go about it in the most effective way possible?
Site-wide discounting is great for making a big splash or if you have a lot of stock to get rid of, but generally discounting should be strategic and focused on getting as much financial return as possible from items that are no longer your biggest attractions (that said, it is often good practice to mix in a few good sellers as loss leaders).
Deep analysis of your store and customers can massively aid you in driving value in these situations, helping you choose what to discount or even identify ways to avoid discounting at all. Some multi-national retailers use international differences in taste and seasonality to help them decide when to cut prices and when to keep products full price. For example, instead of immediately discounting products that aren’t selling in Germany, they might simply hide them from German shoppers and sell them for full price in Spain.
Personalization software is a good way to optimize sales automatically, learning as it does, what a shopper likes and dislikes. It also recognises if they are particularly discount driven. This helps you to take some of the targeting work out of the equation, making your sales smart.
If you are a larger retailer you may want to consider the opening of an online outlet store to enable you to discount as a form of excess stock disposal all year-round but for smaller merchants a sale section should be more than sufficient. Alternatively, you may want to consider 3rd party companies and resellers, or even B2B go-betweens like BoxFox who will appraise and sell your excess stock to re-sellers for you.
Flash sales create a sense of excitement and instill a sense of urgency, this tends to make them more effective and enables you to get rid of stock quickly, without having to commit to month-long discounts. ln fact, flash sales have been shown to generate a 35% lift in transaction rates. As Chris Poad, Director of Fulfillment for Amazon, North America, states “What we’ve learnt from the flash sale phenomenon is that you can create a consumer scene out of scarcity and urgency for a product that was otherwise a problem”. Again, you can choose to outsource by going through third-party flash sale companies or host them within your store.
1. Swedish company Indiska use a “Other people have also thought” recommendation to lead sale driven buyers further into their website.
2. Caliroots have their flash sale as the central focus of their site, directing all attention towards the imminent sale.
Flash sales create a sense of excitement and instill a sense of urgency.
If you do choose to run a flash sale there are a few things to keep in mind:
- Consider the length of your sale, too short and people may miss it, too long and the sense of scarcity that drives flash sale buying diminishes. The best length for you will depend on your business but three-hour flash sales have been shown to generate the best transaction-to-click rates — 59% higher than other sale lengths.
- Communicate sales effectively, posting a countdown to your social pages and emailing your customers. Email is important, representing 18% of the referrals to flash sales websites. You can also inform people that come to your site with a pop-up. But beware, bombarding people will quite likely turn them off altogether. An invite and a reminder is standard practice.
Orelia use a pop-up to inform people of their daily one day advent sales.
- Flash sales are more effective if they are infrequent. Too regular and the sense of occasion is diminished - for that reason, pick your date and time carefully. Dig into your data to figure out what is best for your business but generally transaction rates have been found to be 23% higher for evening flash sales, with the amount of revenue per email also being higher, by 30%.
- If your flash sale is succesful it will mean a spike in traffic to your store - you need to make sure your site is able to handle that. If there are technical glitches on the day, not only is there going to be a huge disruption to your customer’s UX but they are likely to tell people about it too! 44% of comments analyzed on the Facebook pages of sites holding flash sales were found to be negative. So you better get it right. Make sure to load test!
Estée Lauder offer a free gift for fragrance purchases over $55, enticing customers to spend that little bit more.
If discounting isn’t working consider taking it one step further and giving stock away. This may feel counter-intuitive but can benefit your business in a number of ways. You can use small pieces as freebies, either with purchases or in exchange for newsletter subscriptions, or use them as an incentive to encourage shoppers to spend more (i.e. “spend $100 dollars and receive a free gift”). Remember though, reserve this tactic for low-cost pieces - you don’t want to hurt the balance sheet too much.
Another way to offer a deal that will see your lesser-loved merchandise fly out the door (and a little extra money fly in to your bank account) is to bundle items together into a bigger, more attractive, and slightly discounted offering. This is generally most effective with small to medium items. If you are simply bundling more of the same item together, the driver a matter of quantity - but if you bundling together a range then consider either complimentary products of the pairing of a more successful item with a less popular piece.
Organic Surge bundle together three of the same product in different scents and offer a small discount.
A chance for you to do good while clearing space in your warehouse! Yes, you will take a financial hit but it is also likely to do great things for your brand’s reputation - many companies sacrifice financial gain for the greater good and find that they gain loyal customers in return. Take Patagonia who encourage their customers to buy used versions of their products online or repair the ones they have before buying more.
Patagonia created a whole film to promote the idea that clothes should be repaired or sold on, reducing the consumption of new products.
Many companies sacrifice financial gain for the greater good.
And in a gesture that was particularly on-brand American retailer REI, who sell outdoor gear, chose not to participate in Black Friday this year, instead giving their employees a paid day off to spend away from shops and at one with nature. Customers were encouraged to do the same and asked to share their experiences on Twitter and Facebook with the hashtag #OptOutside. While this decision will no doubt have financial repercussions for the company the (free) coverage and increased customer engagement, will no doubt bring financial returns of their own.
REI made their decision to opt out of Black Friday the focus of their site, giving them maximum opportunity for press coverage.
By asking users to use their hashtag on Black Friday, REI not only created user generated content but increased their exposure.
It’s also worth noting that you may be eligible for tax deductions on charitable giving so get giving!
Now you have got rid of your old stock it’s time to get new pieces in! But when considering your options make sure to look at your data to spot trends as to what did and didn’t sell, decreasing your chances of excess stock next time around. An ABC analysis will allow you to make informed decisions, as the LOKAD site explains;
“ABC analysis is a inventory categorization method which consists of dividing items into three categories, A, B and C: A being the most valuable items, C being the least valuable ones. This method aims to draw managers’ attention on the critical few (A-items) and not on the trivial many (C-items).”
Based on data point such as volume, profit and turnover, this will give you a good idea of the items that do not meet your Gross Margin Return on Investment (GMROI) requirements.
For more tips to help you prepare for Q1 come back next week when I will be tackling the issue of margins lowered by discounted stock (or in case you missed it, check out my last piece which looked at return rates)!
Alternatively, you can download our handy Q1 checklist for all the tips in one go...