Despite growing at a fast pace, fashion e-commerce are one of the most dynamic and competitive markets. Those who work in the segment already understand that nothing is set in stone and that is what allows the store to achieve commercial benefits. In this particular context, profit margin is definitely no exception to this rule.
To make sure we are on the same page, we remind you that the profit margin is how much is in your pocket when a product is sold, discounting all the diluted costs of course.
As we have already mentioned, this surplus can be flexible depending on the commercial objective of the moment, in addition to the strategies adopted to achieve it. These objectives can be diverse, and arise directly from the analysis of the business and the market.
To better contextualize, we can talk about some scenarios:
- E-commerce need to position a product with a higher Average Ticket for a different audience than the one it already reaches organically. Therefore, the store lowers the profit margin in the short term to promote itself with influencers who speak to the new desired audience. By ignoring the margin at first, it pays back at the end by selling new products to the new audience.
- A new micro collection arrives for Black Friday. Your team was able to negotiate new material at a lower cost, or was able to produce it more efficiently, and the proposition is that this collection will allow them to reach a large audience with the idea of profiting from selling in large quantities. Therefore, the e-commerce promotes it by reducing the margin, sustaining this acquisition and seeking to maintain this customer base in the medium term.
As we can see, we accept to sacrifice the margin in a planned way, especially when we are winning in another way.
One of the problems, however, is when the business is threatened by market elements that erode the profit margin (and this happens relatively frequently), and we have no choice but to face it and benefit from days, such as, Black Friday.
The enemies of the fashion e-commerce profit margin during Black Friday
We can begin to delve into this topic with a very real example. Let’s consider that an e-commerce company sells a t-shirt for USD$100.00 with a production cost of USD$32.00.
If the sale is made through Marketplace, this channel will also earn a commission, but we will consider the sale to have been made through your own website in this scenario. Thus, we have a gross profit margin of USD$68.00. That looks pretty good, right?
However, with that value, we still have to make a series of deductions, such as:
Fixed expenses: team salary, pro-labore, rent (if you have an office or warehouse), etc;
Variable expenses: shipping, taxes, advertising to generate the purchase, expenses with electricity and water, etc;
In other words, we now realize that the space for errors in the sales process is quite narrow, especially those that can bring new costs, don’t you agree? To give you an idea of what can happen, we will list some example cases:
“Bracketing”, the terror of the Profit Margin (and of all fashion e-commerce)
To increase market share, major retailers in the US and Europe have adopted free and easy shipping policies. This movement was not restricted only to foreign markets, but to all e-commerce.
Many brands in the fashion ecommerce market soon set limits on when shipping could be offered, but in other markets there is still a policy that is causing nightmares for fashion ecommerce.
“Bracketing”, as it’s called, defines the practice of consumers who buy different versions of the same product to try at home, and then return everything that did not fit.
This practice is eroding profit margins. A Vogue article shares the following, “bracketing increases the number of items returning to distribution centers, which reduces storage capacity for other items. Returns, especially free ones, are costly for businesses and require more labor time and space, with no guarantee that returned items can be resold.”
Those articles show that much of the returns received by large retailers like Amazon are forwarded directly to third-party companies, which are responsible for liquidating this type of inventory. Many times they don’t even go back to the initial sellers.
Logistical problems during Black Friday 2022
Imagine that, during Black Friday 2022, you receive a much higher volume of orders and your team is not prepared to absorb that flow while maintaining a good quality service.
As a result, in this process errors occur and some shipping labels are changed, products are shipped differently from the order placed etc. There are many things that can happen and go wrong.
Simple mistakes like these will create a huge cost with reverse logistics at a time when the amount charged for that product doesn’t support the time required to fix the issue. That means that you will be paying to sell, and you will continue to generate negative experiences with the consumers.
Exchanges due to choosing incorrect sizes
Another common thing to avoid during Black Friday is extra work with reverse logistics. One of the main reasons for exchanges and returns in fashion e-commerce are issues related to the purchase of the wrong size of the products (and secondly, the non-conformity of the product that arrived with what the consumer purchased).
These changes driven by size or other issues with the product or delivery are extremely common and have the ability to leave the profit margin fairly low.
One of the ways to improve it is by maintaining a high Conversion Rate. In order to do so, it is very important to offer good deals to your audience. Make sure to follow some of our tips to create the perfect offer for your customers while preserving your profit margin.
9 Tips to increase your Profit Margin by investing little to nothing
Get rid of products hanging around in your inventory: Create strategies to convert those products that are stuck in your stock for a long period of time;
How is your commercial ability? Try to negotiate better prices and have even more aggressive promotions on some products that attract attention, especially if you resell multi-brand products. The traffic of people that can arrive for a few products can diminish your entire inventory;
Don’t forget your audience: Talk with your team to ensure that, during Black Friday, the product handling process is as agile and accurate as possible;
How many steps does your customer take to complete a purchase? Make it easier for the consumer to make a quick purchase in e-commerce. Don’t forget that different brands are targeting audiences similar to yours.
We always say here at Sizebay that each customer has an “energy bar” when they enter an e-commerce. Each time the user’s session remains active, this energy bar decreases, until it reaches the end and the user jumps to another site or clicks on another banner sponsored for him.
Ensure processes that prevent money from being thrown away: Make sure that those responsible for executing paid traffic strategies ensure paid media investments are made for products that have inventory that is available to be sold. A large part of paid traffic is redirected to products that are no longer available in the e-commerce, which ends up wasting money;
What has worked well before? Try to increase your Conversion Rate by betting on actions that you have already felt have worked at other times (kits, free shipping to some regions, instagram lives trying on some clothes or with interesting content, etc.);
Remove any doubts that may get in the way of a sale: Invest in tools that generate purchase security and increase your Conversion Rate. Especially after the investment that has already been made to get to the check-out.
Remember that, to maintain a positive profit margin, we must do everything possible so that those who come to the e-commerce buy and buy assertively. This will help reduce the risk and help avoid returns or exchanges;
Invest in reviewing the shopping experience: In general, offering a great shopping experience is already important in any e-commerce. However, this becomes even more relevant when we find ourselves in a period, such as Black Friday, where the user’s attention has even greater competition.
Are your delivery partners good partners? Negotiate with logistics companies to optimize your deliveries, from interstate to those in charge of covering the last mile.
How about you, what will your Black Friday 2022 be like?
We can see that there is a path that shows the way for brands to achieve better sales results on important dates, such as, BF22.
Even though each audience has different objectives, what they all have in common is that they absolutely all prioritize more positive and effective shopping experiences. It is up to each e-commerce company to understand how to take on and respond to this responsibility, either alone or with partners who support this need.
If you want to solve size problems that affect your profit margin, look into using our Virtual fitting Room, a solution that generates unique and personalized size recommendations for the body measurements of each person. What’s even better is its accessible price and excellent quality, especially in this period of Black Friday 2022!
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