By: Jaya Pathak
The festive season has been synonymous with sales and numerous deals for customers as well as online retailers. In India, the season has already started from Durga Puja and it will continue till the new year sales and offers. The festive season has become a golden opportunity for e-commerce businesses to maximize profits but there is a catch. Selling more is no longer necessary means earning more.
Behind the attractive discounts and deals there is a financial burden, rising customer acquisition cost, expensive shipping and aggressive price competition which are squeezing the profit margins of retailers.
Why This Festive Season Is Getting More Expensive For E-commerce Sellers
Digital Advertising Costs Increasing:
Customer acquisition costs increase dramatically between October and December. Major brands invest large amounts of annual marketing budget during this time. This drives up the cost of advertising on Meta, TikTok and Google Ads. Cost per mille and cost per click metrics routinely increase by 30-50% over usual levels.
Independent retailers and mid-market retailers will feel the pain here as they will be unable to get a good ROI. Campaigns that may have given them a 3:1 ROI in March could give them little to no ROI in November. Large companies with large budgets will outprice the smaller businesses.
Visibility is now a huge cost. A significant financial outlay is required simply to gain visibility on primary advertising platforms. This then means that profitability depends entirely on the customer lifetime value rather than the initial transaction. These numbers are becoming harsh.
Postage Costs Increase:
Physical products are another key area where costs increase. All global and regional postage companies will increase their prices during the peak season. This won’t be a small increase. Residential postage can increase between $2-$6 per item. This reduces margins considerably for lower priced items.
Dimensional weight pricing also becomes a significant burden during this period. Sending lightweight products in larger packaging increases fulfilment costs substantially. Warehouse costs will increase as third-party logistics companies charge extra fees to store additional inventory. Cardboard boxes, bubble wrap and thermal packaging will increase in price.
Even though the same severe issues seen during the global pandemic are no longer present, there can still be some issues with supply chains. Securing container or airfreight during the late third quarter can be difficult, and additional premiums are often required to obtain shipping capacity. This will increase landed costs just as stock arrives for the festive rush.
Discounts Increasing:
With the current economic climate and constant inflation, customers are much more price sensitive. Shoppers are constantly looking for discounts and will hold off buying until the best discounts become available. This means that aggressive discounting must begin from the first week of November.
To keep conversion rates up, higher percentage discounts, bundled products at reduced effective rates, or absorbed fast postage costs become necessary. This can cause the entire gross margin on a typical consumer product to disappear if 20% site-wide discounts and free postage are offered. Customers are getting used to constant promotions and will often not complete a purchase unless a voucher code is visible at checkout.
The pressure to take part in doorbuster events is immense. This means losing out on margins significantly. Sales targets may be hit, but the bottom line will take a considerable hit.
Returns:
Returns are much more expensive. Items will have to be sent back, checked, repacked and put back on the shelf. Often the cost of returning one item will be higher than the original outbound postage. Items will often be devalued as soon as the return is processed. Electronics that have been opened or clothing that has been worn will have to be sold for a fraction of the original retail price.
Items that don’t pass quality control will be disposed of. This will mean direct financial loss and unnecessary waste. This secondary cost is rarely factored into festive forecasts but can really impact Q1 figures across the sector.
Tech Costs:
Running an online store involves significant infrastructure expenditure. Hosting fees will increase during flash sales and high volume periods. Many retailers will invest in high-end tech apps to help with upselling, improving cart recovery and reducing fraud. This will be just before the fourth quarter.
This will cause additional monthly overheads at precisely the moment variable costs are peaking. Processing fees from the payment gateway will also increase. A set amount is charged per transaction regardless of the underlying profit margin. If the site goes down or is running slowly during a high volume period, customers will be lost. This means all preceding advertising costs are wasted entirely. Running a website during the festive period isn’t cheap.
Conclusion:
The cost of getting involved in the festive season is becoming a long-term issue. High volumes alone can no longer be relied upon to cover rising operational costs. Margins have become tight and if miscalculations occur, the risk of business failure increases substantially.
Careful attention to unit economics, stock positioning and a willingness to drop unprofitable customer segments are now essential. Those who succeed will be those who are being strategic with the festive period. Adapting is no longer an advantage, it’s a necessity.