People
With double-digit inflation, rising borrowing costs, falling consumer demand sitting alongside the constant need to innovate, ESG concerns, and supply chain challenges, you could forgive Retailers for feeling like the world is against them at present.
And the challenges don’t look to be abating anytime soon. With inflation predicted to peak at 13% by the end of the year, and with likely rises in the BoE base rate, consumer spending will be suppressed even further.
Despite attempts by the (now-ex) Chancellor Kwasi Kwartang’s ‘mini-budget’ to stimulate growth, consumer spending is anticipated to reduce with Helen Dickinson, (CEO, British Retail Consortium) noting “consumer spending will be considerably constrained this winter with inflation continuing to climb and energy bills rising further.”
In fact, in recent times consumer confidence has only been lower during the 2008 financial crisis, and will likely worsen over the coming months as the realities of rising energy, mortgage, and general inflation are felt by consumers.
Alongside the external market forces taking shape, the shift in consumer behaviour and demand is accelerating, creating new market dynamics that are difficult for retailers to predict, manage and strategically approach. “Metail” is on the rise, and consumers are constantly regrouping and changing according to social trends, identity politics, personal whims, and even time of day.
So, given the tsunami of challenges facing the sector, what actions can UK retailers take now to weather this impending storm? The winning formula dominating board room agendas at present is a combination of “Back to Basics”, and the need for agility.
Inventory - Back to Basics
Retailers and brands are turning up the spotlight on inventory management best practices. With huge uncertainty clouding near term picture, there is an enhanced focus on investing and instituting the right processes, tools, and organisational structure to support the teams making the buying decisions to be proactive in inventory positioning before inventory becomes an issue.
This required investment in forecasting processes that leverage AI, optimised open-to-buy, and developing tools for the teams to better develop buy quantities. Knowing your customers to understand demand forecasting trends, aligning up front before buys are put in at a corporate planning level, and then having the ability to ‘fast-source’ to react to demand all require agile decision-making.
Inflation & supply chain – a double ‘whammy’
Cost inflation and supply chain disruption have continued to be an ‘existential’ crisis for retailers. It comes as no surprise that in our recent Turnaround and Transformation Survey, inflation and supply chain were cited as the top factors driving distress, with inflation the number one long-term challenge facing the global economy.
Attempts to pass cost increases onto customers is a delicate balancing act in the fiercely competitive retail sector, ramping up the importance of knowing your customers, and the logistical challenges of providing the ‘right product, right place, right time’.
Layer on production costs, where suppliers are also feeling the squeeze through increased materials and labour costs, striking that balance becomes even more of a challenge, especially for Retailers who trade on a discount / low-cost model, where selective price increases will need to be adopted, like Primark with its Autumn/Winter range.
Strategies need to focus on shorter, flexible, and more agile supply chains that can deal with supply shocks and address shifts in consumer behaviour – including on-shoring and near-shoring, deglobalisation, and contingency planning to mitigate bottlenecks and changes to supply.
Retailers are also forming “inflation control towers” bringing together cross-business teams with senior sponsorship to centrally manage inflationary asks (with the right insights) instead of leaving this to individual buyers.
For those Retailers looking at a cost-cutting approach, a strategic application is key rather than a blanket percentage-driven ‘slash and burn’ approach. Cost reductions need to ensure that value is preserved by looking at costs in terms of the value they bring to the business and what is really needed.
Consumer behaviour – A continuously evolving dynamic
The power dynamic shift from retailer to consumer was already in full flow prior to inflationary pressures, with the rise of “Metail” consumers have never been more empowered in the way they shop.
However, for millions of people in the UK, much of the support outlined in the recent budget announcement will be swallowed up by soaring energy bills, higher mortgage payments, and higher costs across the board are squeezing household budgets, reducing discretionary spending.
Irrespective of the current inflationary climate, ESG is still high on the corporate agenda for many retailers, and for reasons beyond the environment. Consumers now make purchasing decisions on how a company acts, their values, and the materials that they use. But standards come at a cost, adding to the inflationary pressures being felt by retailers and customers alike.
Retailers, therefore, need to be smart with their tactics and adopt a more agile approach, flexing with the unpredictable nature of the consumer, and work hard to retain their loyalty. If they don’t offer perceived value, consumers will switch brands.
Developing a strong value proposition is key to the more cost-conscious customer, anchored around value for money. Adopting the right tone and reaching new audiences will be critical in protecting market share through authentic communication.
There is a challenging period ahead for retailers in the UK as disruption and market conditions continue to test management teams. Retailers now more than ever need to build agility into their DNA to deal with both short and longer-term challenges.
To hear more about our Retail Outlook, or for more information on how AlixPartners can support your business through this period of disruption, get in touch.
