For most retailers, the winter holidays represent the bulk of profitable sales for the entire year. The planning process begins in January or February, and a successful season is predicated by careful and meticulous plotting over much of these 11 months. But it’s a fast-paced environment that requires a merchant to be nimble, reacting and adjusting in an instant to changes in pricing, inventory and consumer preferences. Merchants must wear many hats, but there’s no need to don the cap of tax collector.
Tax automation software during the holiday selling season is one way to simplify a highly complex process and remove risk, especially during peak times. And 2024 promises to be unique in several ways.
Thanksgiving this year comes late and the compressed holiday season equals a more intensive sale season in advance of the main event. Analysts expect a staggering myriad of promotional activity sure to drive traffic regardless of brand participation. This year’s shorter season leaves room for a build-up to Black Friday filled with additional sales events. Many retailers have already begun announcing their promotions.
“The holiday shopping season has been reshaped in recent years, where consumers are making purchases earlier, driven by a stream of discounts that has allowed shoppers to manage their budgets in different ways,” said Vivek Pandya, lead analyst, Adobe Digital Insights in support of Adobe’s annual predictions. “These discounting patterns are driving material changes in shopping behavior, with certain consumers now trading up to goods that were previously higher-priced and propelling growth for U.S. retailers.”
As online shopping continues to rise, U.S. retailers are expecting to see a significant increase in e-commerce activity. With Adobe predicting U.S. online sales to hit $240.8 billion this season—a staggering 8.4% increase over 2023—tax automation will be crucial for managing this influx, particularly for omnichannel retailers balancing online and in-store sales.
Most of the large U.S. retailers will be running promotions to correspond with Amazon’s planned Prime Day event October 8-9. Target kicks off first, running from October 6-12, followed by Walmart from October 8-13 (with special early access for Walmart+ members). Best Buy and Amazon are holding 48-hour blitzes starting October 8-9. These events and any retail promotions are expected to draw heavy traffic as consumers remain overly price conscious and sensitive to economic fluctuations. This season, an unusually high number of shoppers will be online, browsing and buying at the same time.
It’s not just the biggest retailers who need to be prepared for peak times. Last year, Shopify merchants rang up $9.3 billion in sales from Black Friday to Cyber Monday. Approximately 61 million consumers globally purchased from Shopify-powered brands and more than 55,000 merchants had their highest selling day ever on the platform.
Notably, volume during this long weekend peaked at 12:01 PM at $4.2 million sales in that minute. At its peak, Shopify handled a staggering 967,000 requests per second, or 58 million requests per minute.
Being prepared to handle that kind of volume is key to not only surviving, but thriving in this environment. Shopify’s platform supports this kind of volume but without the added tax automation software, retailers risk opening themselves up to accounting headaches. A program such as Avalara’s is built to handle high transaction volume and is robust enough for 2024’s expected peak sales.
“We’ve had a flood of transactions hitting our servers, sometimes with thousands of requests in a second,” said Patrick Neu, Director of Strategic Partnerships at Avalara. “We’ve built out our infrastructure so that it’s always scaled up to handle the volume.”
Global commerce is also on the rise and navigating the many laws across borders adds more complexity. “This is a real concern for small to medium-sized merchants looking to expand in the U.S.,” said Neu. “And Black Friday has been embraced by retailers in countries that don’t celebrate Thanksgiving, making it an international promotional opportunity.”
Product returns add another level of complexity. Roughly 15.4% of all holiday purchases are returned, according to the National Retail Federation. Ecommerce purchases are returned at an even higher rate. Tax calculations on these can be complex. Did a shopper buy online and return to a store in a different tax area? Was a purchase made online but returned in-store in a different tax jurisdiction? Have tax rates changed between the time of purchase and the return? Updated tax automation programming will solve for this effortlessly.
Tax automation software can help make the holidays happier for merchants with:
- Improved efficiency. A merchant’s attention needs to be laser focused on being a merchant – managing inventory, responding to customers, expediting shipping. Not puzzling through a myriad of tax rules and regulations locally, nationally and globally.
- Error reduction. Up to date programs like Avalara eliminate mistakes in the moment thus ensuring later reporting to be accurate and in line with current laws.
- Real time updates. Few things are more complex and changeable than tax rules, particularly around peak times when additional taxes could be imposed.
- Improved reporting. Savvy retailers learn from each season and detailed reporting and accurate data are key to understanding successes and failures, and improving season over season.
- Seamless integration. Avalara automation software integrates seamlessly with Shopify, individual merchants and various marketplaces helping to facilitate sales and tax collection across platforms.
- Improved customer service. What is seamless and simple for the merchant translates to the same for customers, especially during the crush of holiday sales.
- Support for growth. A successful holiday season sets up smart merchants for an even more successful season the following year.
Tax collection need not run afoul of the holiday spirit. With tax automation, retailers can focus on what they do best—selling—while ensuring seamless compliance and setting themselves up for future success. In fact, tax automation is the gift that keeps on giving, well beyond the holiday rush.
Get ready for peak periods with Avalara’s seamless tax automation and Shopify integration—reach out today to ensure global compliance and support your business growth at www.avalara.com.