The impact of inflation in retail: how our merchandising SaaS solution will help
27th July | 3 min read
The cost-of-living crisis, with inflation running at its worse rate in decades, is having a major impact on retail. While the chancellors’ £15bn package is welcome, one retail veteran described it as “a drop in the ocean[1]”, as inflationary pressures are set to put a squeeze on household budgets and therefore on retailers’ profits for months to come. Difficult decisions will now have to be made about if, when and how much of the suppliers’ cost increases are passed on to customers, while buyers and category managers in particular will be faced with balancing overall margin with customer retention.
The struggle to add value
Of course, evaluating the key lines will be critical with the obvious questions arising: What should we protect? What should we invest in? A price-protection strategy and discounts on certain staples may on the surface maintain store footfall and brand equity, but could have unintended consequences across the category and cannibalise sales in other areas damaging profits. At the same time, profit margins will need to be made up from price increases on premium lines. A focus, therefore, is needed on introducing new ranges and exciting product extensions that bring in new customers and justify a slightly higher spend by existing ones.
Yet, where a scientific process is required based on data and fact, a reliance on legacy systems, and a mix of phone calls, emails and spreadsheets, burden the buyer with category admin. Rather than focusing on strategy, new product sourcing and supplier negotiation, dated systems result in a disproportionate amount of time firefighting the almost universal cost increases and manually tweaking hundreds of product prices within a certain tolerance of competitor discounts. This isn’t adding value to the business, nor to the customer, and mistakes can have disastrous consequences.
AI-powered intelligence improves outcomes
Customer loyalties are tested in challenging times. And it is those challenging times that highlight insufficiencies and inadequacies in the systems and processes relied on to engender that customer loyalty. Right now, retailers will be feeling the pressure of prolonged underinvestment in systems and a siloed approach to negotiating, buying, planning, funding, marketing and recording activities. And with pressure to act quickly, buyers and category managers need access to data in real time to make better, more informed decisions about their go-to-market offer to maintain margin.
The latest in intelligent merchandising solutions based in the cloud combine real-time data and artificial intelligence (AI) to generate accurate demand forecasts, boost productivity and drive better financial results. With workflow and visualisation, retailers can test and simulate the effects of different prices and promotions on specific items and the cross-effects on the whole category at the planning stage to give accurate forward visibility on profit and loss. And with all the data hosted centrally, the system provides ‘one version of the truth’ for all stakeholders.
The automation of rules-based pricing means that prices are manipulated based on market intelligence and within certain thresholds, taking into account promotion plans to avoid clashes and allow for price establishment periods. Buyers, freed from the burden of administration, can be more productive and innovative, finding new product lines, delivering enticing offers and better engaging with customers. A more acute understanding of what customers want and what competitors are doing will ultimately help retail leaders to make decisions with confidence, clarity and speed; to pivot category items and promotions as required and deploy more effective margin-improvement strategies, leading to greater successes.
To learn more speak to one of our retail consultants.
[1] https://www.theguardian.com/business/2022/may/26/sunaks-15bn-cost-of-living-package-not-enough-asda-boss-stuart-rose
