UK retailers are becoming increasingly overwhelmed from relentless inflation—but they can rise to financial challenges in ways that streamline business operations, retain customer loyalty, and continue to drive profitable growth.
The looming recession is here to stay and its impact on the retail sector is inevitable.
This unrelenting cost-of-living crisis continues to send grocery and energy costs even higher. Consumers’ purchasing power is rapidly dissipating, with more challenges to navigate on the horizon as central banks raise interest rates to combat the price rises.
It is estimated that the world economy will expand by just 3.2% during 2022, a significant decrease from 6.1% last year.
Global Economic Growth Forecast, International Monetary Fund
Struggling consumers are spending less money, subsequently diminishing revenues for retailers and manufacturers. Given the high input costs the industry currently faces caused by raw material and energy inflation, this will prove to be one of the biggest challenges the retail sector (and its consumers) will face this holiday season and beyond.
Retailers must cope with the new threat of record inflation and create solutions to sustain their businesses, retain customer loyalty, and guarantee long-term growth regardless of this rough economic period.
We’ve identified key areas where retail leaders can focus their efforts to transform this difficult period into an opportunity for the future to ultimately get ahead of a recession.
Prioritise Sustainability & Value over Price
When consumers are struggling, slashing your prices to attract more of them is easier said than done. Many retailers are working with incredibly tight margins, and cutting prices may not be viable because it can have a detrimental affect on long-term profitability and strategy.
The focus should be on the value retailers deliver to consumers, shifting marketing and inventory strategies accordingly. A good example is UK retailer Marks & Spencer, which is investing £100 million across three years in its “Remarksable” value range, which is price-matched against competitors’ products whilst promising a commitment to market-leading sourcing standards and product innovation in a nod to sustainability efforts for modern consumer demands.
With the cost-of-living crisis still rife, UK consumers are turning to second-hand options in an effort to save money, providing an almost inadvertent boost in the quest for more sustainable shopping.
British shoppers are making a big switch to budget ranges and discount chains as supermarket inflation reached a record high of nearly 15% last month, driving up the average annual bill by £682 a year.
November 8, 2022., The Guardian
Recent findings revealed that almost a quarter of UK consumers plan to buy second-hand or shop on resale sites like Facebook Marketplace, eBay and DePop more frequently in response to the cost of living crisis.
As consumers plan to stop buying non-essentials such as holidays, furniture and electrical items altogether, then that is a huge worry for retail and leisure industries.
The rapidly growing ‘pre-loved’ market provides an affordable option to cash-strapped consumers, but also meets strong desire from price-conscious shoppers in an effort to minimise their environmental impact.
Consumers are paying closer attention to how companies treat their employees and the environment, as well as their customers – and in some cases, are willing to pay extra to reward companies that ‘do the right thing’.
Chief Executive of Retail Economics, Richard Lim
Understanding consumers to retain customer loyalty
It’s likely we’ll see more customers begin to trade-down into the new year, and retailers will need to consider how they appeal to these consumers. In the 2008 recession, a lot of retailers relied on discounting to drive volume, but tanking their brand value in the process.
Retailers have sound data that confirms their existing customers spend more money with them than new ones. So it's logical to focus on existing customers’ needs during tougher times and understand how to retain more customers to benefit from that knowledge.
Doubling down on loyalty schemes and maintaining high customer service standards will be essential. It’s also important that retailers look further than discounting and solve how they can tailor their offers to retain customer loyalty.
It's increasingly critical exactly how retailers and manufacturers talk and describe their goods and services, and in a looming recession, a different, empathising and considered tone of voice could be the big difference to attaining and retaining customer loyalty.
As household budgets become squeezed, empathetic and meaningful communication can be a highly effective tool for brands to build loyalty and achieve a competitive advantage. However, striking the right tone with shoppers reverberates far beyond the cost-of-living crisis.
Chief Executive of Retail Economics, Richard Lim
Renowned toy manufacturer Lego, increased its profits significantly during the global financial crisis in 08/09 by emphasising the longevity of its product. Lego recognised that parents are more likely to want to buy their kids products that will last, rather than toys they don’t have to replace or bin in the near future. It may sound obvious and common-sensical, but it yielded profitable results.
Consumers still want an authentic Retail Experience
Despite a slew of rising costs, consumers still desire meaningful experiences when they shop. They need to be inspired and engaged by retailers rather than just shopping elsewhere to spend their cash. If the retail market is indeed squeezed during the recession, finding a solution to provide that experience could allow your business to become a beacon for consumers.
Understanding and empathising with your customer is imperative. Customers in the low-income bracket literally can’t afford to put much weight on brand loyalty. Retailers need to stand with their customers and make them feel genuinely valued and that can be achieved through meaningful customer experiences.
In recent years, affordable clothing retailer, Primark, has began incorporating Disney themed cafes and Costa Coffee outlets into its stores, giving shoppers a reason to visit even when they weren’t clothes shopping. Meanwhile, garden centre outlets like Dobbies also provide soft-play areas for children to give parents a welcome break during their stay.
ASDA have also introduced an initiative where all kids eat for £1 in its cafes. It’s a supportive gesture; an indication to its customers that the retailer understands their needs and the stresses of feeding children in these difficult times.
Give your customers another incentive to visit your stores, be it physical or online, even when they’re not necessarily thinking about spending money on your normal store wares.
The pandemic has permanently raised their expectations when shopping. Consumers would happily pay more in return for a better or more memorable shopping experience, despite already record high inflation.
Consumer perception of value for money goes far beyond price.
Wrap
There’s no crystal ball that can predict changes in the economic crisis we all find ourselves treading water in. But for retailers and manufacturers alike, it's crucial to put themselves in the strongest position possible to remain adaptable and agile to successfully weather the storm.
This unpredictable scenario for retailers is likely to remain challenging indefinitely, but the current predicament also presents an opportunity for those that move decisively and swiftly to develop a solution. Retailers have a solid incentive to act holistically across the organisation and value chain.
Emerging victorious from the storm will be to those who're willing to transform their retail capabilities and grow their organisational flexibility.