The money quarter: Preparing for a profitable festive season in e-commerce

As we head into the last quarter of the calendar year, or the ‘money quarter’ as I like to call it, online retailers should be bracing themselves for another record-breaking season. I wouldn’t dare mention the slice of the consumer spending pie that online retail now owns in Australia (okay, it’s 16% at last count by the ABS in February — and rising).

Speaking of pie, here’s some food for thought: Google Trends data shows Aussies start googling the team ‘Christmas Gifts’ in August. Yep, August! Don’t worry if you’re a last minute kind of person — it seems that a heck of a lot of us are, with search volume peaking between December 6 and 12. What this tells us though, is that the festive season is actually already upon us, and as online retailers we need to be making sure that we’re ready for the onslaught.

So what does the last calendar quarter look like for online retailers? It’s likely October will continue to be a strong month across the board, but November once again will be the peak sales month of the year, continuing to streak away from December. Referring back to Google Trends data, purists among us will be disappointed to know that the term ‘Black Friday’ reaches peak search volume that is around twenty five times higher than the term ‘Christmas Gift’.

As we end the year, Boxing Day sales feel like they’re running out of steam a little bit, as consumer’s wallets get emptier than ever before by that time of year, and even the most avid online shopper can begin to tire. We can expect one final flurry on Boxing Day, and then it’s time to take your well-earned leave as the rest of the country clocks off in January and the early part of February.

So what’s the strategy for an online retailer trying to keep or acquire a share of that very large, and very sought after, consumer wallet this Christmas?

There’s no doubt consumers love online shopping for their ability to compare prices and find a better deal, with a survey from Lonergan Research finding that 81% of Australians between the ages of 18-25 believe they can find better pricing online than in stores, although the retailer that goes on sale ‘because everyone else is’ is a lazy retailer.

Tactical promotions can work, but discounting can sometimes be the undoing of an online retailer as the market can get scrappy; one retailer undercuts the next, forcing that dreaded race to the bottom. Some of my best e-commerce clients go on sale no more than twice a year, for only 48 hours at a time.

A good online business has unique value propositions, or other differentiating factors aside from just price, like a great user experience, excellent customer service, super fast delivery, or unique product that can’t be price matched easily.

As a rule of thumb, an online business that’s registering a gross profit of anywhere in the 30-40% range needs to tread very carefully, and my advice would be this: if you don’t know your gross profit margin, then don’t discount.

It’s all too common for a business to heavily discount, while throwing money at ever-increasing paid media channels, only to find that with the heavy variable costs that come with increased sales (like the cost of fulfilling and shipping the increased orders). Add to this the lower gross margin through discounting and there’s very little left in the coffers.

As online retailers, if we can discount profitably and in moderation, there’s an opportunity to have a very good end to the year.

But as we head into the money quarter, let’s try and keep the fight clean, and be progressive and innovative (we’re in tech after all, aren’t we?). And above all, put profits over sales!