Head of Operations & Finance at Toolio.
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Last year, the U.S. experienced record-high inflation and subsequently faced an unsurprising but consistently aggressive series of interest rate hikes. While we’re all hopeful for the new year and see positive indications of easing inflation, it is too early to say that we will return to normal targets anytime soon. In light of this, how are retailers—whose very livelihood depends on the purchases of consumers—supposed to respond?
The Path To Beat Inflation
Although no one has been shocked by the rate hikes themselves, what has been somewhat surprising is Chairman Powell’s commentary that we may not be near the end. In fact, he said that it might take “resolve” and “patience” to beat inflation. If I can be blunt, these are words that no one wants to hear after years of Covid uncertainty and unpredictability.
In fact, the parallel is worth mentioning. I’m probably not alone in finding myself facing similar emotions to the ones I did during the first two years of our collective Covid journey. There were constant ups and downs fueled by hope, disappointment and fear. We felt jubilation when the vaccine became available, then despair over the realization that cases were peaking again. But, shortly thereafter, the booster arrived—followed by the realization that we weren’t completely in the clear. In the case of inflation, what we originally thought might be fixed with a few aggressive rate hikes may be more pervasive than anticipated.
The Importance Of Having A Battle Plan
So, what is the impact this economic news has on retailers? Unfortunately, it means they’re getting pummeled from multiple directions. With inflation, retailers’ cost of goods are going up, yet consumer willingness to spend is going down. It’s essentially the worst-case scenario for those behind the scenes at retail brands.
In times like these, I think back to a leader I used to work for who repeatedly said, “Hope is not a strategy.” I couldn’t agree more. So instead of holding our breaths and nervously hoping this year will unfold as we need it to, retailers should approach their businesses with an inventory battle plan. This requires scenario and contingency planning and understanding where the assortment margin lies and how to adjust pricing and investments, given the rapidly changing environment.
Strategies To Emerge Stronger On The Other Side
Adopt useful technology.
Never before has technology been able to bring together sales performance, inventory position and scenario planning in a way that makes creating an inventory battle plan so feasible. Depending on the stage of your company, there are a variety of tools and tactics that can help you succeed in good times and bad. For instance, every retailer should have an e-commerce platform and a shipping and/or fulfillment software (if you’re outsourcing this part of the puzzle).
As you mature, it’s also important to get an Enterprise Resource Planning (ERP) system, like NetSuite, and a customer relationship management (CRM) tool like Gorgias. The bigger you grow, the more tools you’ll likely need to successfully maintain smooth operations. This can include tools like more complex fulfillment warehouses, product lifecycle management, product syndication, return management, review platforms and so on.
Make sure you seek out the best merchandise planning software for your purposes, which can make all the difference in being able to effectively align merchandise plans to your strategic business objectives, maintain dynamic open-to-buy plans and plan for the unexpected.
Adjust prices wisely.
Raising prices is not completely off the table; it just needs to be handled incredibly delicately. If you decide that inflation is hitting your brand too hard and implement price hikes across the board, you’re likely to lose even more customers who are already scared to spend money. But there may be areas where you can charge more and not alienate your followers.
For example, you could perform a key value item (KVI) assessment to determine which products customers consider the most valuable. Keep these items stable in price, and then look to increase prices on other items. This can help you maintain revenue with your core products (and keep customers happy) while still bringing in more profit on products that are less widely adored.
Experiment with different strategies for persevering.
Beyond careful pricing adjustments and using the right technology, what other steps can you take to successfully navigate inflation? Here are some ideas.
• Diversify supplier sources to reduce dependence on any one supplier and mitigate the impact of cost increases.
• Implement cost-saving measures, such as reducing waste and improving operational efficiency.
• Offer promotions and discounts to encourage consumer spending and maintain market share.
• Monitor market trends and consumer behavior to adjust merchandise offerings and pricing in response to changing conditions.
• Build and maintain strong relationships with customers to foster loyalty and reduce the impact of economic fluctuations.
• Maintain a flexible and adaptable business model to respond quickly to changes in the market.
• Regularly review financial reports and adjust budgets as needed to maintain profitability.
It’s never easy when the economy is in flux, and the future feels like a few giant question marks, but there is a lot that retailers can do to insulate themselves from worst-case scenarios. Here’s to you, your brand and your success—no matter the economic conditions that lay ahead.
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