More on Combating Inflation and Uncertainty:
Decisive Actions for Retailers
Just as retailers were feeling like they had returned to (a new) normal, inflation has brought another wave of uncertainty and instability. Particularly for retailers who cater to customers’ discretionary spending, this latest economic hurdle feels like another unfair headwind.
Essentially, these headwinds are coming from two directions:
These continuing unstable times require introspection, decisiveness, and flexibility. Most importantly, a comprehensive approach is needed, with the understanding that present and future actions are interdependent. Let’s take a deeper look at the decisive actions that retailers can take to mitigate the risks presented by these external challenges. We will focus on actions to take in the current season as well as those more appropriate for future seasons.
Current Season Actions
While in-season, the challenge is twofold. First, incentivize demand. Second, efficiently fulfilling that demand. Let’s discuss each in succession, and then outline specific actions to drive both.
Incentivize Demand
To drive demand, modern and strategic approaches to pricing and promotions are required. While the consumer continues to cut discretionary spending, some shoppers will still open their wallets for the right deal or value. As we discussed in a recent Retail and CPG Advisor newsletter, advanced pricing strategies driven by price and markdown optimization technologies are becoming imperative, particularly in fast-moving retail segments like grocery. Further, aggressive marketing and innovative promotions are critical to getting a share of a seriously diminished demand pool.
Efficiently Fulfill Demand
Most retailers have implemented buy online, pickup in-store (BOPIS) capabilities. While these processes have morphed since the height of the pandemic, retailers continue to make improvements to ensure a seamless customer experience and boost loyalty. Further, many brands are increasingly using their stores as distribution points for shipping directly to customers. The critical investment, implementation, and flawless execution of these unified commerce capabilities and processes, as well as tight integration across inventory management, transactional, and fulfillment systems, can be the difference between surviving and thriving.
Explore Quick Wins
At the same time, we recognize that the above actions may require the implementation of new technologies, which typically requires several months (after selecting the right systems) to implement and even longer to begin to see measurable impacts and benefits. What can retailers do that would provide more immediate results?
We recommend exploring price optimization services that can be piloted and even integrated into existing systems quite quickly—in some cases six to eight weeks after an initial data load. A recent Parker Avery client realized $8 million in incremental margin from their eight best-selling items following a focused two-month pilot (achieving an incredible ROI on the total system investment of $7 million).
A second potential “quick win” is taking an honest but comprehensive look at your existing processes and systems that support your in-store omnichannel fulfillment capabilities. We often find that the business process design, system configuration, and/or adoption and execution are not driving the expected benefits from the original solution implementation. In some cases, we find untapped system functionality that can enhance a process when properly configured and integrated into business activities. With some business process modifications and system tweaks, as well as proper documentation, communication, and follow-up, store associates and other end users can be in a much better position to correctly perform the processes and drive better business outcomes.
With some business process modifications and system tweaks, as well as proper documentation, communication, and follow-up, store associates and other end users can be in a much better position to correctly perform the processes and drive better business outcomes.
Future Season Actions
Say Goodbye to LY
Given these past three years’ volatility, no retailer will have the benefit of “comp year” comparisons upon which to base future predictions. Between a global pandemic and multiple social and economic disruptions that followed, simply looking to “LY” for guidance is no longer a viable strategy. Beyond that, modern, AI-driven demand forecasting and retail planning tools have fundamentally changed the way retailers should look at future demand—rendering traditional historical-focused approaches flawed and ineffective.
Build Flexibility into Assortment Planning
With inventory levels still at precarious levels, assortment planning will be uniquely challenging, and for many retailers, the best option is to be extremely selective about which items can ‘carry forward’ versus where new products should be introduced. Long-term raw material commitments, as an example, should be based on assortments where material use can be diversified (across divisions and/or brands). Determining what should be repeated from recent successes and what should be introduced for the first time to generate new demand is a delicate balancing act.
A critical success factor in assortment planning flexibility is the availability of robust forecasting models that can consume and incorporate updates of actual data (including external variables) on a near real-time basis. Best-in-class, responsive demand forecasting models are table stakes now for determining the “what and how much” of assortment planning.
Ditto with Supply Chain Sourcing
The next step is figuring out how to turn on a dime to optimize supply chain efficiency. Here, flexibility with sources is required. Managing the supply chain more deeply, as well as developing a more rapid fulfillment cycle is a key to success. Certainly, this is a more strategic play. Incorporating a combination of raw material management and tiered sourcing options enables a faster reaction to the demand when it returns. Additionally, true end-to-end supply chain visibility, leveraging solution-specific tools and/or collaborative processes can become a key differentiator for retailers to effectively adapt to the short, medium, and long-term challenges that this environment thrust upon them.
Retailers that succeed in the long run will address these specific pricing, omnichannel execution, demand forecasting, and assortment planning capabilities now. Doing so will not only provide immediate benefits but can prepare the organization with the tools and processes that will enable it to overcome other future disruptions.
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