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07/06/2022

3 Things Retailers Can Do to Thrive in a Tough Economic Environment

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Magnet attracting shoppers to store

When it rains, it pours: COVID, store shutdowns, supply chain problems, labor shortages, inflation, and now a likely economic slowdown. The challenges facing retailers keep on coming. 

In recent months, we have seen major retail brands across the world replacing their chief financial officers as they confront these issues, including behemoth brands like Wayfair, Walmart, Old Navy, The Hudson Bay and Lowe’s. These new CFOs are under increased pressure to squeeze profits out of already thin margins and a gloomy economic horizon. 

With the use of data and technology like artificial intelligence, retailers have the ability to move the needle. Here are three things retailers can do today to be ready for a tough economic environment:

1. Fix Product Discovery

Retailers with a better website experience perform much better. Their conversion rates and AOV are higher, and they can invest more in digital marketing, profitably.

The most important element of a better e-commerce experience is product search. Econsultancy found that shoppers using the site search bar convert at a rate of five to six times higher than their counterparts not using a search engine. 

Unfortunately, according to the Baymard Institute, most e-commerce experiences are  “... so poor that 31% of all product finding tasks ended in vain when the test subjects tried using search and… a whopping 70% of the search engines are unable to return relevant results for product type synonyms — requiring users to search using the exact same jargon as the site — while 34% of the sites don’t return useful results when users search for a model number or misspell just a single character in the product title.”

Fixing search means providing relevant results regardless if people call it by another name, misspell it, or are looking for products with more than one meaning. It’s not scalable to think you will fix this with rules, dictionaries, and a thesaurus. AI-powered search learns from prior shopper behaviors to disambiguate queries by determining what users really wanted vs what they typed.

It also means delivering personalized results for each customer, even when they are visiting an e-commerce site anonymously. This is why it’s key that your search leverages AI to change results based on each customer’s real-time behavior on the site.

2. Focus on Profits

Delivering a great online experience is key but not enough. It’s also critical to maximize profitable growth. The days of revenue growth at all costs are over and every retailer must focus on e-commerce profitability.  

To do this, retailers must use their data on product margins and shipping costs to surface and recommend the most relevant products consumers want to buy while also maximizing profitability, something only AI can do. 

An additional challenge brands are facing is a lack of customer and product data needed to deliver a personalized shopping experience. Often, guests check-out anonymously — we call these “cold shoppers.” Luckily, with advancements in AI technology, personalized recommendations can still be achieved with minimal data.

3. Minimize Returns

While most retailers are overjoyed that shoppers might purchase three pairs of pants in different colors and sizes, the joy is short-lived when the consumer returns two of the three pairs. 

Every year, U.S. companies collectively spend an estimated $50 billion on product returns — a challenge for brands of all sizes. The bad news doesn’t stop there: those returned items are responsible for massive amounts of landfill waste and27 million tons of carbon dioxide emissions every year. 

Product returns aren’t just the fault of consumers over buying, sometimes products purchased are due to retailer’s failure to take them on a customer journey that provides them with information and access to the right products and content. 

[Read more: Navigating Returns: Strategies to Avoid a Logistical Nightmare]

Shoppers consistently receive inaccurate product descriptions, poor quality images, irrelevant search results, lack of customer reviews, and accurate sizing charts, and a lack of supporting videos and guides designed to educate and guide. Irrelevant, ineffective experiences on a retailer’s website are making the product return problem even worse. It has become so bad some retailers like Zara are now charging for returns. 

According to recent research, 43% of NRF’s top 100 U.S. e-commerce sites already charge for returns. However, this can be a risky strategy and is no surefire way to recoup losses from returns. If poorly executed, the introduction of these charges can result in disgruntled and unhappy customers.  

Reimagining Retail Returns

Great search can actually help reduce returns. Understanding which products — and which shoppers have the highest rates of returns — can help you make better merchandising decisions. When it comes to search, merchandisers can boost products with low rates of returns and avoid promotions to shoppers with a high return rating. 

Further, including customer comments on sizing can help customers make better decisions. Bunnings Warehouse, a large household hardware chain, understands the importance of positioning its DIY advice with product results to ensure shoppers can easily access educational materials prior to purchasing.

After a few years of unprecedented challenges, change, and e-commerce growth, retailers should buckle up and get ready for a year of post-pandemic adjustment and transition. However, advanced technologies such as AI and machine learning can help brands better understand changing consumer behavior and intent to increase profit margins and decrease the potential for product returns.

Nicolas Darveau-Garneau, Chief Growth and Strategy Officer, Coveo

About the Author

Nicolas Darveau-Garneau

Darveau-Garneau is chief growth and strategy officer at Coveo, a leader in AI-powered personalization, recommendations, and search for digital experiences. He is a former Google executive, where he worked 11 years and most recently served as Google’s chief evangelist.

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