In 2022, food prices reached their highest level since the 1990s. With some commodity prices falling, should suppliers be passing on the cost benefit?
Julie Neal is a Director and Consumer Products sector specialist at Vendigital. She recently shared her insights with Retail Sector.
The most important trading season of the year has arrived, and in an intensely competitive market, retailers can’t afford to fail.
With mounting costs eroding margins, and a cost-of-living crisis dissuading customers from indulging too heavily this season, retailers know they have to work harder and smarter to turn a profit. Although discounting products is expected at this time of year, getting the strategy wrong can impact growth and leave retailers with significant financial losses. With major retailers entering administration in the run up to the festive trading season, such as Joules and Made.com, finding ways to optimise profit in the run up to Christmas has become a matter of survival.
While there is huge pressure to discount products, particularly around key promotional events, such as Black Friday and Cyber Monday, it can be a dangerous strategy. Picking the right product and timing the discount correctly are crucial to maximising footfall and/or ecommerce activity. Selecting a smaller range of key products to entice customers to the store or website, will increase the chance of consumers buying other products at full price while they are there. To compete for consumer spend, some retailers may be tempted to start their sales early, although this too could prove risky as it could peg back revenues at a key time of year. Instead, flexibility is key; coupling discounting with other strategies to optimise profits.
Shopping can be stressful for consumers at this time of year, and they are likely to stay longer in the store or on the website, and as a result purchase more, if they enjoy the experience. For online retailers this means ensuring websites can cope with increased traffic, and that the interface is user friendly. Making sure that desirable or seasonal products are front and centre will entice consumers to increase their dwell time and purchase more items. For instore retailers, it’s important to keep the store tidy, restocking regularly to ensure products are available and making the payment process as smooth as possible. Over the recent year we have seen investment in technology like self-service machines to minimise queuing and keep customers moving through the checkouts.
Self-service machines also reduce the need to hire seasonal staff, which can add to cost burden significantly at this time of year. It also frees up existing staff to concentrate on restocking shelves to help keep stock moving and mitigate the risk of being left with excess stock once the festive period is over. Some retailers need extra space to store product onsite during the festive season, particularly if supply constraints are an issue. Installing pop-up space may be an option and some retailers have even installed temporary marquees. It may also be necessary for retailers to re-think management processes during the festive season. For example, reducing the frequency of stock takes can help to refocus resources on activities that customers put first, such as managing payments and keeping the shopfloor well stocked.
With consumer confidence waning due to the current economic uncertainty, retailers are placing more focus on customer loyalty, with many high street brands choosing to reward returning customers. Some offer early access to sales for customers who are signed up to the retailer’s newsletter. This is a particularly effective marketing strategy as it increases subscriptions to the brand. It also allows the retailer to collect customer data, which they can leverage throughout the year – for example, by offering personalised incentives in the form of text messages to entice customers to shop again.
Although no one can predict exactly how the festive period will go this year, retailers must remain flexible and focus on delivering a positive consumer experience. While the cost-of-living crisis will add to the pressure on retailers this festive season, getting the basics right and making the most of customer data will enable them to optimise profits at a crucial time.
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