Despite growing quickly, fashion e-commerce is one of the most dynamic and competitive markets. Those who work in the segment already understand that nothing is set in stone, which allows the store to achieve commercial benefits. In this particular context, profit margin is definitely no exception to this rule.
To ensure we are on the same page, we remind you that the profit margin is the amount that 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 current commercial objective and 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 needs 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. Ignoring the margin at first pays back by selling new products to a new audience.
- A new micro collection arrives for Black Friday. Your team was able to negotiate new material at a lower cost or produce it more efficiently, and the proposition is that this collection will allow them to reach a large audience and profit from selling in large quantities. Therefore, 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 plan to accept the sacrifice of margin, especially when we are winning in another way.
One problem, 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 website in this scenario. Thus, we have a gross profit margin of USD$68.00. That looks 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 is not restricted only to foreign markets but also to all e-commerce.
Many brands in the fashion e-commerce market soon set limits on when shipping could be offered, but in other markets, a policy is still in place that is causing nightmares for fashion e-commerce.
“Bracketing,” as it’s called, refers to the practice of consumers who buy different versions of the same product to try at home and then return everything that does not fit.
This practice is eroding profit margins. A Vogue article states, “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
Imagine that, during Black Friday, you receive a much higher volume of orders, and your team is not prepared to absorb that flow while maintaining high-quality service.
As a result, errors occur in this process. Some shipping labels are changed, products are shipped differently from the order placed, etc. Many things can happen and go wrong.
Simple mistakes like these will create a huge cost with reverse logistics 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 purchasing 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 can leave the profit margin fairly low.
One way to improve it is by maintaining a high Conversion Rate. To do so, it is very important to offer good deals to your audience. 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 an extended 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 site. 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: 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 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 already 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: Offering a great shopping experience is already important in any e-commerce site. However, this becomes even more relevant during a period, such as Black Friday, when 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 be like?
We can see that there is a path for brands to achieve better sales results on important dates, such as BF22.
Even though each audience has different objectives, they all have one thing in common: 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, consider using our Virtual Fitting Room. This solution generates unique and personalized size recommendations based on each person’s body measurements. Even better is its accessible price and excellent quality, especially during Black Friday!
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