5 Financial Mistakes Retailers Should Avoid This Holiday Season

But to generate strong holiday sales, retailers need to be strategic with their finances – from doing a thorough analysis of the previous holiday figures to securing loans/financing earlier. Certain financial mistakes are quite common – but it doesn’t take a lot to correct them.

To start with, you’ll want to look at figures from the previous holiday season to project this year’s holiday sales, cash flow, earnings, expenses and inventory needs. Failure to do so means you’ll have no real benchmarks for measuring success and your data analysis will be skewed. You could overspend on inventory or underestimate how much cash flow you need for the months ahead. This will more than likely have a negative impact on your bottom line.  

So, let’s look at some figures from the 2022 holiday season. Generally, retailers had to increase discounts and prices to ramp up customer demand. In November and December 2022, average discount rates were 21% globally (11% up from 2021) and 23% in the US (up 10%). Meanwhile, product prices went up worldwide by 5.3% in the same period. This led to online sales in the US growing by 5% ($270 billion) from the previous year. 

This behavior indicates shoppers are more sensitive to price than ever before. And that sensitivity is motivated by several factors, including the value of time and experience in relation to a product, how convenient it is to buy and the level of service that will be provided by retailers. 

To make sure you’re prepared, be sure to do an extensive cash flow forecast. This involves taking all the previous year’s sales, revenue and expenses and predicting certain outcomes like the price of sourcing inventory from a specific country. But rather than doing it manually, you can automate the forecasting through predictive modelling. You’ll speed up the process, get more accurate information and identify how customers plan to shop during the holidays. 

Before going into our next point, it’s worth noting one of the biggest trends for the holiday period over the last couple of years – an increase in product returns. Driven by a lack of consumer confidence and discretionary spending, returns nearly doubled the week after Cyber Week 2022. Overall, 13% of orders happened throughout November and December 2022, with the vast majority of returns being made before December 25th. This could’ve been down to early bird shoppers selling gifts back and then purchasing again at a higher discount. 

For 2023, Salesforce has predicted poor return experiences will put 21% of online orders at risk. And this is where the link to excessive inventory comes in. A high number of returns increases the chances of having more inventory than you can shift. That impacts cash flow by having to spend more on storing goods and your inventory management gets out of control.

So, always have a strategy in place for converting excess inventory during the holiday season. Here are some tips:

• Run an inventory forecast by gathering qualitative and quantitative data so you can improve cash flow.
• Do a clearance sale for product categories that have been consistently popular in the past. Reach out to customers via email and social media and make the sale accessible for a time when you’ve historically had slow inventory in the previous year. 
• Remarket poor-selling products by taking updated product photos and improving descriptions.
• Bundle certain items together to move more products, while protecting your margins and profiting on a sale. 

For this mistake, we’re referring to avoiding last-minute product shortages and shipping delays. If you don’t vet your suppliers for financial risk, you’re leaving yourself vulnerable to a loss of sales, damaged brand reputation and uneven cash flow if they have to shut down production due to insufficient cash flow, worker protests or political unrest.

As trends currently stand for the 2023 holiday season, 77% of consumers are expected to buy middle-price point items, while 23% will buy high-end items. So, if you’re sourcing these types of goods from suppliers you need to make sure thorough checks have been carried out.

When running credit checks on your suppliers, don’t just focus on credit scores and credit limits. These two data points alone don’t tell you enough about a supplier’s financial health and they certainly won’t give you a clear enough indication of whether they’ll run out of cash and have to shut down production before your holiday orders are completed. Make sure you’re looking at data like DBT scores, legal filings, sanctions lists and total dollar value of past due payments.

If you suspect that one or more of your suppliers will let you down, don’t waste time hoping for the best. Act now by building a network of backup suppliers and vetting them based on things like:

• Product quality and delivery: Do they have a good history of shipping goods ahead of busy holiday times? Do the items meet your quality standards?

• Communication: Is the supplier likely to be responsive if things don’t go to plan and you need some last-minute shipments?

• Values:  Do you have the same value system? Are you positive the supplier isn’t using child labor or forced labor? Do you know if they’re on any sanctions lists?

We’ve talked about the dangers of having excessive inventory. On the other side of that conversation is having the right items to meet projected customer demands that you’ll have worked out in your forecasting. And in a year when product and labor shortages have been big news, can you really afford to wait to order goods that could make or break your holiday sales?

Let’s circle back to AI and automation for a minute. This is another big trend that’s dominating 2023 holiday shopping. Recent stats have shown that 17% of consumers are using generative and predictive AI tools for product research and 10% are using them to build holiday shopping lists. 

Leveraging this kind of AI-driven data can give you so much insight into the kind of products that people will want a discount on for Cyber Week or to buy as a Christmas gift. You can factor in the types of items you order from suppliers over a specific time.

But just because you want to place your holiday orders early doesn’t mean you should make snap decisions with your suppliers. It’s about discernment. It’s doing things like:

• Ordering product samples before you purchase items in bulk so you can verify the quality

• Having a written contract in place that covers expected delivery times, currency, liabilities and anti-corruption legislation

• Confirming the right payment terms for both parties and setting out a specific payment schedule to maintain positive cash flow throughout the holidays

Given the volatility of the retail industry throughout 2023, you may want to consider securing financing or loans early to avoid last-minute rejections or cash flow shortages. There are a couple of inventory financing methods to explore. 

You could try inventory loans, which are ideal for small retailers because they tend to be simpler to manage. For big retailers, you could try an inventory line of credit. This allows for ongoing funding and is useful if you need to refinance in the future.

To make the most of either of these options, here’s what you should do: 

• Know how much cash is in your accounts and how much will be coming in and going out each month. If you suddenly fall short in the months before the holiday season, you could be getting high volumes of orders but unable to fulfil them if you haven’t done your due diligence on your suppliers.

• Take a close look at all your loans and financing and be 100% clear on whether you can pay them back in time. Failure to pay back the loans will damage your credit score, lower your credit limit and then make it harder for you to pay your own invoices on time.

• Run a credit check of your own business. Lenders will do their own investigating to make sure you’ll be able to pay off a loan based on the sales you make over occasions like Black Friday or Cyber Monday.