How retailers can successfully navigate inflation

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Head of Operations & Finance at Toolio.

Last year, the US experienced record high inflation and then faced an unsurprising but consistently aggressive series of rate hikes. While we are all hopeful for the new year and see positive indications that inflation is easing, it is still too early to say that we will return to normal targets anytime soon. How should retailers – whose livelihoods depend on consumer purchases – respond in light of this?

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The path to beating inflation

While no one is shocked by the rate hikes themselves, it is somewhat surprising Comments from Chairman Powell that we are not at the end. He even said it might take “determination” and “patience” to beat inflation. If I may be blunt, these are words no one wants to hear after years of Covid uncertainty and unpredictability.

In fact, the parallel is worth noting. I’m probably not alone in finding myself dealing with the same emotions as during the first two years of our collective Covid journey. There were constant ups and downs fueled by hope, disappointment and fear. We were elated when the vaccine became available, then desperation at the realization that cases were peaking again. But soon after, the booster arrived – followed by the realization that we weren’t quite clear. In the case of inflation, what we initially thought could be solved with some aggressive rate hikes may be more pervasive than expected.

The importance of a battle plan

So, what is the impact of this economic news on retailers? Unfortunately, this means that they are bombarded from multiple directions. Inflation increases the cost of goods for retailers, but consumers’ willingness to spend decreases. It’s essentially the worst-case scenario for those behind the scenes at retail brands.

At times like these, I think back to a leader I worked for who repeatedly said, “Hope is not a strategy.” I totally agree. So instead of holding our breath and nervously hoping that this year will unfold the way we need it to, retailers should approach their businesses with an inventory plan. This requires scenario and contingency planning and understanding where the range margin lies and how prices and investments can be adjusted given the rapidly changing environment.

Strategies to come out 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 your business is in, there are different tools and tactics that can help you succeed through good times and bad. For example, every retailer should have an e-commerce platform and shipping and/or fulfillment software (if you outsource 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’re likely to need to keep your business running smoothly. These can include tools such as more complex fulfillment warehouses, product lifecycle management, product syndication, returns management, review platforms, and so on.

Make sure to look for the best merchandise planning software for your purposes, which can make all the difference in effectively aligning merchandise plans with your strategic business objectives, maintaining dynamic open-to-buy plans, and planning for the unexpected.

Adjust prices wisely.

Price increases are 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 you push prices across the board, you’re likely to lose even more customers who are already afraid to spend money. But there may be areas where you can ask for more and not alienate your followers.

For example, you can use a assessment value item (KVI). to determine which products customers find most valuable. Keep these items stable in price and then try to raise the prices of other items. This can help you maintain sales on your core products (and keep customers happy) while still making more profit on products that are less loved.

Experiment with different strategies to persevere.

Besides careful price 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 reliance on a single 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 prices in response to changing conditions.

• Build and maintain strong relationships with customers to foster loyalty and mitigate the impact of economic fluctuations.

• Provide a flexible and adaptable business model to respond quickly to changes in the market.

• Regularly review financial reports and adjust budgets as necessary to maintain profitability.

It’s never easy when the economy is in flux and the future feels like a few giant question marks, but retailers can do a lot to protect themselves from worst-case scenarios. To you, your brand and your success, regardless of the economic conditions ahead.


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