High Prices, Increased Returns, & Tariffs: How AI Can Keep the Festive Season Profitable

Is the UK retail industry preparing for another gloomy festive season? On the heels of 2024’s meagre sales growth during the November and December months, this year’s period could get hit harder.  

For instance, trade tariffs imposed by the US range from 10% to 25%, depending on the industry, impacting inventory levels and pricing. At the same time, consumer confidence is low heading into the festive season, as they anticipate higher costs of goods. The unpredictability lies on top of a 2024 festive retail sales performance that saw 0.4% year-on-year growth, according to the British Retail Consortium. 

Retailers are keen to protect profits wherever they can this season, which is also hampered by higher retail returns. DHL reported that returns during the UK autumn festive months were up 3% in 2024.  

To optimize the festive period, both by reducing incidents of returns fraud and by building efficiencies into the returns process, retailers can leverage AI and retail analytics to improve net sales and the flow of cash from November through December. 

Centralised Returns Support Festive Profits 

Festive months are met with high levels of omnichannel shopping activity, which leads to an increase in returns. The number of transactions can be difficult to stay on top of when returns flood both channels. However, retailers that deploy a returns process where AI gets embedded into online portals to help monitor omnichannel transactions can improve logistics decisions, streamline operations, and improve profits. 

Essentially, retailers can develop a centralised and automated returns process that enables AI to help monitor shrink, fraud, and abuse happening all along the returns process. No doubt, returns are tough on a retailer’s bottom line. Every time a return happens, net sales decrease. Then, compounding the issue, returns fraud and abuse can infiltrate a system, driving further losses. If companies can’t see where abuse or fraud is happening, they can’t limit the damage. 

This is why retailers need to implement a centralised system, even if it’s bringing in multiple tools, to ensure that all returns transactions can be viewed in one place. Then, from that centralised system, AI and retail analytics support teams by finding issues of loss and preventing returns fraud. The ability to have a streamlined location enables a retailer to build more trust within its system and close gaps where abusers and organised retail crime groups find loopholes to exploit. 

Personalised Returns Promote Loyalty 

Equally important within a retailer’s returns strategy, a centralised returns system enables AI to provide a personalised returns experience, which ultimately better supports a company’s loyal shoppers.  

To avoid damaging that loyalty, AI embedded into the returns process helps assist retail associates to approach each return on a case-by-case basis. This can be invaluable during the festive season when there are a high number of returns. 

For example, if a shopper brings in a return shortly after Christmas, AI can review that person’s history and behaviours. Perhaps the shopper often returns after Christmas but always does so legitimately, showing no patterns of wardrobing (or the act of buying an item to use it with no intention of keeping it). Instead, the AI might find that the shopper is a high spender who shops a lot. The retail associate can then get a recommendation from the AI to process that shopper’s return. 

On the other side of the coin, the AI also anonymously reviews each transaction and will alert associates to any suspicious behaviour. The associate can prevent a fraudulent return and save against the bottom line.  

Internal Shifts to Protect Cash Flow 

Along with developing a centralised, AI-powered returns strategy, there are additional internal practices that can help retailers optimise cash flow during an unpredictable festive season, including: 

• Predict patterns of loss for the season. Gift card fraud is a common tactic during the festive months, but retailers can use AI to be predictive and proactive in the fight against the crime. Additionally, beyond fraud and theft, by embedding AI and data analytics into EBR (exception-based reporting), retailers can spot patterns of retail loss happening that might be causing revenue drains, such as food waste, issues with markdowns, administrative errors, and more. 

• Incentivise loyal consumers. Returns can be a positive experience for shoppers and retailers. While providing a positive returns experience will lead to higher consumer loyalty, through personalisation, retailers can also offer shoppers incentives to help them spend more. For instance, customers might receive exclusive rewards for opting to return an item in-store over shipping, which is a more sustainable practice that increases top-line sales and drives profitability. 

Ultimately, it’s incumbent on all retailers to give consumers a positive festive shopping experience, but finding ways to incentivise them to spend more money helps improve profit margins. Using AI to identify areas of loss that can be caught right away can cover losses before they get too deep. 

Easy Returns Lead to a Happy Festive Season 

Understandably, there are worries about cash flow heading into the festive season. Yet, unlike tariffs and rising taxes, returns and reducing shrink are two areas where retailers have some control.  

Companies that develop more efficient internal processes and embed AI into a centralised system can more easily track retail loss and support teams to build back revenue. By utilising technology that helps shed light on all parts of an omnichannel operation, retailers gain full protection and visibility into end-to-end returns fraud and claims abuse, and wherever retail loss is happening. 

Leveraging AI to assist with a smoother, more efficient returns processes can help retailers protect profits during a very important festive season to come.