Predictive analytics give retailers the chance to forecast sales in ways previously impossible. But many struggle with where to begin when faced with the seas of available data — customer preferences, historical performance, industry trends and other micro- and macro-economic factors. Further complicating matters are the different ways these factors impact online vs. in-store retail sales. For example, general merchandise retail sales were down 0.4 percent through the second quarter of 2015 from the same time last year — the first year-over-year decline since the 2008 recession — while e-commerce sales were up by 15.4 percent. Why the difference?
This divide can be frustrating for retailers. By understanding which internal and external factors impact performance for online vs. in-store retail, as well as how to integrate this information into existing business processes, retailers can gain powerful insight on how to accurately predict market fluctuations both on and offline and improve bottom line profits.
Consumer optimism, gas prices, the job market and even weather affect the performance of brick-and-mortar and e-commerce sales. Examining these factors can help retailers gain a competitive advantage in today’s fiercely aggressive market.
Economists keep a close eye on consumer optimism when projecting future retail sales. With the recent volatility in China and severe stock market fluctuations, retailers — both online and off — are wondering how this instability will impact consumer confidence and purchase patterns this holiday season. While the global economy as a whole may appear unstable, consumer optimism is strong, up 11.4 percent from the same time last year.
This optimism bodes well for retailers this holiday season — especially for e-commerce merchants. Since online success isn’t dependent on physically driving a customer to a store, sales at these retailers are less affected by other external factors, such as travel preferences and gas prices.
Low Gas Prices
Commodity prices play a significant role in e-commerce and brick-and-mortar business, but the impact is felt in different ways. For in-store retail, gas prices impact tourism and travel, so the influx of consumers coming to a store heavily depends on the rise and fall of fuel, which affects both flights and road trips.
To date, gas prices are lower than they’ve been in three years, and miles driven in the United States this year are up 4.1 percent — the highest recorded since 2004. These low prices are projected to have positive implications for brick-and-mortar retailers, as consumers are on the road more often now than in the last 10 years.
For e-retailers, lower fuel prices have a more indirect effect on sales, contributing to an increase in disposable income and consumer optimism. Lower fuel prices also directly and significantly reduce distribution and overhead costs — a critical driver of e-commerce retailers’ bottom line profits.
The Job Market and Wages
The job market has struggled to regain its strength since the economic crisis in 2008. However, as of September 2015, job openings in the United States were above pre-recession levels. Coupled with this momentum, as workers find more available job options, retail giants, such as Walmart, are upping the minimum wage to improve employee retention rates and morale.
For e-commerce in particular, these increasing wages offer a distinct competitive advantage. With lower overhead costs in terms of staffing, the demand for higher wages will eat away less of the e-retailers’ revenues.
Severe Winter Weather
Severe winter weather has historically had a huge impact on brick-and-mortar retail sales. According to a recent global study, a one-day shut down in New York means a $152 million loss in retail sales.
While shut downs don’t necessarily apply to e-commerce retailers, severe winter weather has shown to have negative connotations to overall online sales as well. In fact, an Adobe study revealed that the significant 2015 Northeast snowstorm caused online retailers to lose $35 million in sales. The reason cited: online shoppers mostly shop while they are in the office. During snowstorms, consumers are typically at home with their families instead of shopping online.
Look Beyond Internal Metrics in 2016
From evaluating consumer optimism and lower gas prices to understanding the sales implications of an improving job market and increasing wages, online and in-store retail sales will fare well this holiday season and into early 2016.
However, examining these external factors is only a start to evaluating how big data can help e-commerce and brick-and-mortar retailers better anticipate sales and demand and create more accurate forecasts. As retailers plan for 2016, they must look beyond internal performance metrics and correlate such external factors to their individual performance. Then — and only then — will these companies have the powerful insight they need to make financial forecasts more accurate and gain a true competitive edge.