Cyber Monday Growth Brings Evolving Risks for Retailers

The trees outside are turning vibrant shades of red, orange and yellow, which has retailers seeing green.  As Black Friday and Cyber Monday quickly approach, it is predicted that spending on these days will be at an all-time high.  Adobe estimates that 2018 Cyber Monday spending will reach $7.25 billion (up 10% from 2017 and 110% from 2016).  Of this, $2.50 billion is estimated to be mobile-only spending (purchases via phones or tablets). 

The swing towards the direct-to-consumer model in the retail industry has created many new risks which retailers must consider.  Here are a few:

• Real-time ordering creates the need for real-time inventory.  For a company to be most successful during what’s expected to be a record-setting day of online sales, their processes and system for recording transactions and changes in inventory must be quick and accurate.  Shoppers placing orders to find out that they can’t be fulfilled may result in negative brand reputation for retailers.
• With digital sales comes private customer data – and the need to manage and protect that data.  We also can’t ignore the sensitive customer information that is maintained through loyalty and rewards programs.  Consumers expect that their data will be protected.  Data breaches have been in the news over and over again - a mistake here could easily tarnish your brand. 
• With customer data comes valuable insights. There’s also a risk that retailers aren’t using their access to data for a positive impact on sales and strategy.  It’s important that companies don’t lose sight of understanding and analyzing available data to help drive innovation and business decisions.
• Sales have become digital, and mobile applications and websites are being used more than ever for purchasing.  Companies need to ensure that their mobile applications and websites are secure and available, all while ensuring a positive customer experience. 
• Consumers want it all!  Let’s face it, we want to receive our order as quickly as possible and, if we can make it happen, we don’t want to pay for shipping. Many retailers offer promotions in which you spend a certain amount and get shipping for free. On Cyber Monday, they may even offer free shipping on all online sales.
• Consider how to maintain effective margins when offering free shipping. One solution that companies are implementing is an algorithm that analyzes the geographical location of the customer’s shipping address versus the item availability at the retailer’s distribution center and stores.  Based on the algorithm, the shipment will be sourced from the most appropriate and cost-effective location.

If retailers can manage the risks that come along with direct-to-consumer sales, they will see the rewards in the form of strong brand recognition.  That, paired with the ability to remain nimble and grow with the constantly adapting industry, will result in successful sales for retailers, not only through the holiday season, but throughout the entire year. 

For more information on how Schneider Downs can assist with your risk and control strategies, visit our Risk Advisory Services page at https://www.schneiderdowns.com/risk-advisory-services.