How Can Sellers Prepare for a Costly, Uncertain Holiday Season?

The 2023 holiday season is upon us, but it seems that this peak season is going to be particularly tough on sellers' margins. While it’s safe to say that the pandemic is over, the effects of pandemic on customers and marketplaces still linger. When planning for holiday season sales, sellers have to account for two key factors- change in customer spending habits and retailers cracking down on freebies and perks. 

CNBC recently conducted a survey with 147 respondents, including The American Footwear and Apparel Association, National Retail Federation, Council of Supply Chain Management Professionals, and United National Consumer Suppliers to identify customer and retail expectations for the 2023 holiday season. 

According to the survey, 43% respondents expect a lower peak season compared to last year, and 21% of those surveyed expect the level of orders to be the same.

Let’s see what sellers need to keep in mind for the 2023 holiday season-: 

Low consumer spending in 2023, will cost margins-: 

Customers will cut down on 2023 holiday purchases

An article from Retail Drive reported that customers may spend less this holiday season. In 2020, customers affected by the pandemic only spent on basic goods. 2021 and 2022 were boost years, where customers overspent. 2023 will see a downturn in peak season spending with customers having already made essential purchases.

Customers are on the lookout for heavy discounts and perks 

In 2023, customers will mainly spend if they come across good deals, which seem unlikely as we will cover later in this article. According to a CNBC survey, 67% of respondents anticipate shoppers seeking discounts during the peak season. This implies that sellers must explore alternative methods to cut holiday season expenses due to tighter profit margins.

Customers expected to spend more on middle-priced goods. 

Customers will spend more on middle-priced items such as jackets and shoes and less on high-priced items such as televisions and cellphones. According to early holiday season activity, 77% of all items being ordered this holiday season are middle price-point items. Only 17% of items ordered are high-end items in apparel, electronics and memorabilia.This means sellers need to plan to optimize their SKU mix and pricing strategy to squeeze maximum returns from customers. 

Price sensitive customers will embrace resale markets. 

Sellers are at threat from resale markets such as eBay, Facebook Marketplace, ThredUp and Goodwill. According to a prediction from Salesforce, 17% of gifts this holiday season will be a resold items. Sellers need to factor in that customers not only want to save money, but embrace sustainability. 

Now that we’ve explored what customers expect, let’s move on to the other part of the puzzle- the retailers. Retailers play a crucial role for sellers, as they manage perks, promotions, freebies, and returns that can greatly impact sellers' margins. 

Streamlined perks and incentives from retailers, will cost sales-: 

In 2023, retailers are reimagining  how to attract, retain and reward customers in the post pandemic world as consumers reduce their holiday season spendings and retailers face inflationary pressures to control costs while increasing sales. 

Logistics company go TRG reported 6 in 10 retailers changed their returns policies between 2023 and 2022. A significant change involves cracking down on free perks and making holiday season returns tighter, reducing sellers’ margins further. Here are some key changes-: 

Retailers shorten 2023 holiday season return windows

This change feeds into a larger trend of cutting back on long-time generous returns policies.In 2023 Amazon reduced its holiday return window by one month from 2022. Earlier this year, JCPenney reduced its return window from 90 to 60 days, J.Crew halved its return window from 60 to 30 days. With reduced perks for their customers, sellers will now have to compensate by faster and free shipping. However, achieving free and fast shipping is not that simple. With Amazon doubling down on making 1 day shipping the new standard for shipping, sellers who cannot afford FBA need to partner with smarter fulfillment partners that can offer Amazon-like 1-2 day deliveries at much lower costs. Don’t worry, you will have a solution by the end of this article. 

Retailers expect customers to pay for returns in 2023 

In 2023, many retailers introduced surcharges on customer returns, making it tougher for sellers to satisfy price-sensitive holiday season shoppers. Amazon announced a $1 charge to return products via UPS, motivating customers to drop items at Whole Foods, Kohl’s or Amazon Fresh locations. Abercrombie & Fitch introduced a $7 shipping surcharge, Zara announced a $3.95 fee for returns. REI also introduced a $5.99 surcharge on returns by mail. Other retailers are expected to follow this trend. If sellers want to win the 2023 holiday season, they need to lower their shipping costs further to balance their margin hits. 

With customers expecting higher discounts, retailers slashing down on perks it’s obvious that your margins are expected to reduce, but not if you can save shipping costs with the right fulfillment partner. Sellers who rely on traditional 3PLs will be hit the worst this holiday season due to higher shipping costs and lower margins. Most traditional 3PLs only have two to three fulfillment centers in the USA, making it costlier to ship products to end customers. 

How can sellers reduce costs for the 2023 holiday season? Smarter Fulfillment. 

The 2023 holiday season puts sellers at a disadvantage as they have little to no control over customer expectations and retailer policies. 2023 has also bought newer challenges such as high fuel prices, carrier general rate increases and warehouse wages. In the wake of these challenges, the only way to save money this holiday season is through smarter, innovative and cost-effective fulfillment. 

Let’s see what you need from an ideal fulfillment partner-: 

Nationwide warehouses to reduce holiday season shipping costs-: 

The best 3PLs offer a distributed fulfillment network to cover 100% of the country in this window. If your current 3PL offers two-three warehouses, that’s simply not enough. To beat a down holiday season, you need to distribute your inventory evenly so that it’s closer to the end customer. This benefits you in two ways-  customers will get their item at lightning-fast speed and you pay the cheapest possible rate. 

Responsive customer care for stricter returns processing 

As return policies become tighter this peak season, you need to guarantee an ultra smooth returns experience to your end customers. Having an edge over returns experience can be a competitive advantage to attract and retain unhappy customers who now have to pay for returns. The best 3PLs will have warehouses built to handle eCommerce returns that can receive returns, assess whether they’re damaged or not, and process them back into available stock whenever possible to minimize holiday season loss. Finally, you should be able to get in touch with your 3PL easily to troubleshoot challenges with peak season returns and come up with quick fixes. Look for a 3PL that offers you a real person to work with your account, and multiple ways to get in touch with them.

Check out how Cahoot’s innovative peer-to-peer network can help you improve your holiday season margins with innovative, smarter and cost-effective fulfillment. 

This guest post was written by Manish Chowdhary, Founder & CEO of Cahoot, a partner of Arka. Cahoot's full-service order fulfillment platform enables merchants with excellent operations to fulfill orders for other sellers.