Strategic Ways to Help Your Business Weather Inflation

Inflation is the major challenge facing Australian retailers this year. With inflation rates reaching 7.3% in the country, many retailers are trapped between that well-known rock and a hard place.

On one hand, they’re noticing the cost of doing business increasing. On the other hand, their consumers are searching for bargains and cutting back on discretionary spending, as inflation is taking a massive chunk of their budgets.

Inflation, rising costs and the economy

Inflation doesn’t always need to be viewed as a negative economic occurrence. The issue arises when inflation occurs too fast, and retailers can’t adjust quickly enough. As a retail owner, leveraging retail problem-solving strategies can help mitigate such concerns and keep you competitive

But before you understand how to fight inflation, let us examine macroeconomic factors, how they impact various aspects of retail and how they will be a key focus for next year:

Supply chain issues contributing to rising costs

Supply chain shortages are a potential consequence of inflation. That’s also known as Demand-Pull inflation. In this scenario, demand for services and goods exceeds production capacity. In that case, the basic macroeconomic principle applies—consumer demand outpaces the supply, and thus the prices increase.

Logistics challenges

The eCommerce industry depends on ocean freight to move goods from suppliers to retail owners. As of 2021, ocean freight costs increased substantially as part of the industry suffering the fallout of COVID-19 and global lockdown.

To make things worse, one negative effect of the pandemic was that most truckers left their trucking jobs, causing the trucking sector to struggle to keep up with the demand for freight services.

The trucking sector is experiencing a shortage of drivers, and there are insufficient trucks to move goods around the region. That increases online retailers’ shipping costs, delays, and longer delivery times.

Online jobs platform Seek reported over 20,900 vacant job positions for truck drivers in late April, and the demand is increasing. New Zealand has also been short of experienced truck drivers for some years.

Initiatives like Transporting New Zealand’s Road to Success driver trainee programme are working to deal with this, but the country competes with economies globally facing the same issue.

Merchandise planning becomes tricky (demand and supply planning)

Inflation does not allow you to plan and forecast sales volume to customers. If the volume is not predictable, it is difficult to determine good prices and promos.

Discretionary income of the consumers

Consumer spending may reduce to save money. For most Australians, that indicates going out to eat less, preventing big purchases, or removing non-essential items.

Most consumers prefer to spend less wherever possible to save more of their income.

What are some lessons to learn from the missteps of others?

Direct-to-consumer (DTC) is a top factor in Levi Strauss’s North American sales. However, disruptions in the supply chain are still interrupting the apparel brand—motivating it to slash its guidance for the rest of the year.

Levi’s attributes most of its progress in the Americas—where revenue leapt three per cent yearly. Last quarter, sales from DTC stores and ecommerce were composed of twenty-nine per cent and six per cent, correspondingly, of the brand’s total revenue.

DTC also accounted for forty per cent of the brand’s total sales in 2020. On top of that, Levi has been creating its DTC presence for quite some time. In 2020, the brand launched its first NextGen store in North America. Their San Francisco location provided shoppers with added services like a “Tailor Shop” for custom T-shirt design.

There’s Zara as well. Inditex SA is raising prices by over-surging inflation rates, making the Zara fashion chain owner a standout among other retailers getting hit by shaky consumer demand and higher costs.

By keeping customers shopping while refuting higher costs through a price increase, the globe’s largest clothing retailer is pulling ahead of competitors. Data gathered by UBS from websites across twenty regions prove that the average price of a Zara clothing item was about 12.2% in July—beyond inflation in most global markets.

“Inflation is here, so marketers will be focusing on how to drive efficiency, leveraging organic channels like social media. It would not be just about growth (it was about growth when there was a lot of money) - it’s about efficiency and productivity.” Sush Padhye, Digital Marketing Lead, Total Tools.

“Inflation didn’t impact the eCommerce business that much – ecom audiences are more affluent and are not quite affected by inflation. The price increase affects rural areas. But from an eCommerce lens, not so much. With that level of disposable income, they will not be affected by inflation.” Anvesha Poswalia, Head of Digital and eCommerce, Unilever.

Moving forward in 2023

Navigating the challenging Australian retail climate, it is important to focus on having more sophisticated optimisation capabilities—staffing, stock, and inventory. It’s important to improve efficiency and productivity and not on growth.

Digitalise

CFOs search for ways to scale back and lessen spending, but professionals agree that retailers must maximise the use of technology to lessen costs and get a leg up on the competition.

Retailers utilise technology to reach consumers in different ways. Retailers have used advanced technology for a while, but not most have used it in the pursuit of cutting costs to fight inflation.

Many retailers have embraced IoT and AI as they search for new ways to attract customers. Both technologies are utilised to boost the personalisation of marketing campaigns and smartphone apps and improve online shopping experiences.

AI also allows retailers to use predictive analytics to help forecast customer purchasing habits while highlighting user-personalised services and products.

A retailer can pick to decrease or increase prices based on customer demand patterns in various products, locations, or categories. That helps retailers adapt to changing consumer spending habits faster and lessen costs where and when needed.

Automate

Most retailers use times of higher inflation to strategically utilise their funds. The leaner the operations, the better. Aside from reviewing your pricing strategy and product offerings, consider ways to do more in your business with less.

The Harris Poll discovered that twenty-seven per cent of retail owners surveyed adopted technology to automate their processes. Another eighteen per cent outsourced some of their work.

You can follow their lead and invest in new technologies to support your staff during these unpredictable times. With automated systems in place, you can depend on those tools to help keep your business running flawlessly, even during quick changes or high employee turnover.