by Mark Hook
- A Shift In Advertising Focus
- 4 Tactics to Grow and Protect Cash Flow
- Consumer Spending Will Be Lower
As the ‘golden quarter’ once again rolls around — the third since the pandemic began — retailers have learnt from experience to expect a direct challenge to business. In 2020, lockdown-fuelled online shopping surges led to mass stockouts; 2021 brought global supply chain issues and delays; and this year, among skyrocketing inflation and the cost-of-living crisis, there is a widely expected lack of demand.
It is the ‘season of silent tills,’ as far as Christmas spending is concerned. Recent research by Brightpearl showed almost seven in 10 US (68%) and half of UK shoppers (49%) are worried about affording the holidays and will be halting their purchases sooner than ever this season, saving what little income they have for essential food, energy, and healthcare expenses. Around a quarter of Brits plan to spend less, while a staggering 52 percent of Americans admit they cannot afford Christmas expenses at all this year.
Facing a Christmas that some economists predict could be ‘called off’ in the eyes of consumers, retailers are braced to do all they can to help shoppers spread the cost; and in turn, keeping profits stable and business afloat.
A Shift In Focus
For the first time ever, it is likely that retailers will see their annual highest spike in sales on Black Friday and Cyber Monday, as 41 percent of shoppers, including a huge portion in the 18-24 age bracket (79%), plan to get their purchases done and dusted early, at as cheap a price point as possible.
The big name retailers are responding to this: Amazon ran a second Prime Day earlier this month called the ‘Prime Early Access Sale,’ the first time it has ever had more than one mass discount event in a year. Many retailers already plan to follow suit, running a number of promotions for extended periods in the lead-up to Christmas day.
The downsides to this approach are double-edged. There is no question that sustaining sales with long-term promotional periods eats into profits. Then again, the alternative — pushing forward with regular prices — could result in a surplus of unsold stock, trapping thousands in revenue and proving a serious blocker to cash flow going into 2023. With every dollar tied up in inventory is a dollar that cannot be invested in growth.
The golden quarter is, by definition, the biggest season for retailers. In the US, this season alone counts for 40 percent of a brand’s annual sales. If the industry loses money at this time rather than benefit from the influx of sales it is used to, it could have serious knock-on effects on the bottom line heading into the new year. That is not a good place to be with many retailers already in a weak financial position. Research by Inventory Planner from earlier this year highlighted that one in four (26%) brands are just four weeks away from ‘crisis point’ issues with cash flow.
4 Tactics to Grow and Protect Cash Flow
Businesses are weathered now, as the rash unpredictability of the market has become the new normal — yet this holiday season could be their toughest challenge yet. Last year’s supplier traffic jams and widespread stockouts still had consumers willing to shop, as the scarcity of the hottest items created a measured level of competition for what was in stock. This time however, the stock is ready and waiting — the challenge is having customers show up in the first place.
The most resilient retailers will keep a cool head by adopting a multitude of strategies, like the ones below, to target and retain customers, perform great customer service, keep sales moving and cash flow healthy.
- Quit the Sporadic Marketing
- Be Operationally Sound
- Use Intelligent Inventory Planning
- Be Equipped for Multichannel
1. Quit the Sporadic Marketing
The old school marketing strategies for customer acquisition still work, but costs have exploded in recent years. In 2013, merchants lost an average $9 for every new customer acquired. Today, it is $29, a 222 percent rise in the last eight years as digital advertising costs have risen so highly. In this climate, a scattergun approach of blasting ads and speculating which will land is simply a waste of funds, not to mention unsustainable to business.
Savvy retailers will use amalgamated retail analytics to find new and existing customers exactly where they are — diversifying their ad spend, switching to new channels and jumping on new trends to ensure their marketing activity is profitable. Marketing software allows brands to target customers, for example, through automated email marketing at every point of the funnel. Alongside the support of these tools, having access to the KPIs that matter, and the functionality to combine datasets across functions, will prove a sound investment as digital campaigning becomes more expensive.
2. Be Operationally Sound
Retailers must safeguard the experience customers receive — that is important for growth during the festive season, but it is also vital for limiting returns and complaints, and to ensure greater opportunity for repeat business in the New Year. Brands must ensure families get holiday gifts on time, as expected, even during spikes in orders. This means retailers need to find solutions to ensure they can process ecommerce orders more quickly and accurately, without having to delay deliveries and staying true to customer expectations. This requires modern retailers to be operationally sound and have the ability to scale quickly when needed.
Inventory Planner research shows that many retailers are planning to employ tactics to actively reduce demand this holiday season such as extending delivery timescales, increasing prices, or eliminating promotions and discounts. Having robust operations, paired with the ability to automate daily tasks like sales orders, stock updates, and distribution decisions so items can get out of the door quickly, means retailers do not have to sacrifice growth during their most important sales season. Instead, they can embrace it with confidence.
3. Use Intelligent Inventory Planning
Having the ability to identify buying patterns, uncover unusual sales trends, and target slow-moving and most popular items using granular metrics such as location, size, and style, is important for building growth, but it is also almost impossible to do manually. CEOs, decision-makers, and Operational Heads need data-driven insights they can draw on fast so they can make moves quickly. Being able to identify your hottest items (to keep them in stock) and know exactly which are your dud items (so you can put them on sale) is a vital growth tactic, but also ensures survival this frugal holiday season.
Ill-made assumptions over demand recently led UK furniture brand Made.com to enter administration after it ‘got caught with massive inventory at just the wrong time’ — the result of overstocking after the brand experienced high growth in the pandemic years. ‘Cash is always king,’ said Made’s Co-founder Brent Hoberman, alluding to the cash flow issues that ultimately got the firm stuck.
Having the ability to use seasonal forecasting methods is a useful way to put guardrails on expectations so brands can experience sustainable growth rather than dangerously over-extending — something that may have prevented Made’s over-ordering errors.
4. Be Equipped for Multichannel
Multi-channel selling can lead to more sales because it makes your products accessible to potential customers across a variety of sales touchpoints, from your own ecommerce store, to Amazon, Etsy, or even social media sites like Pinterest.
That said, according to Brightpearl’s research, just 14 percent of retailers in the UK, and a quarter of US firms, plan on adding new channels in 2022. If adding channels is a surefire way to get in front of more potential customers, why are so many brands holding back?
For many, the increased admin and logistics of managing inventory across additional channels, at least if they use a clunky traditional ERP, is a major roadblock, but operational issues do not have to limit growth. When your products are available for purchase on more than one platform, you widen your reach and opportunity to get in front of more customers, sell more products, and increase your revenue. You just need to be prepared to manage the complexity that can be introduced into your operation.
It is also an opportunity to de-risk the business. With consumer spending likely to be down this holiday season, selling to them from one place is a huge gamble. The most resilient retailers de-risk with a multichannel approach — selling from a central webstore as well as utilizing wholesale opportunities, social media markets, leading online marketplaces such as Amazon or eBay, or big-name and boutique bricks-and-mortar stores. They also have the means and technologically to extend to these new channels quickly and efficiently, allowing them the freedom to scale and drive growth without downtime.
Consumer Spending Will Be Lower
We are on the cusp of an economic downturn not seen in years. Consumer spending will be lower this holiday season as the public pull back on festive shopping in order to save money. Retail businesses need to focus on continued growth; that includes being equipped operationally to deliver and de-risking with a multichannel approach.
Alongside these tactics, costs spent on marketing have to be mitigated with the use of granular insights, maximizing the dollars spent on acquisition by using advanced analytics to target the right customer profiles. Once customers are sold on your brand, keeping tight control over inventory levels and understanding which products are likely to sell and when and which are slow moving is absolutely key. You do not want to be carrying excess inventory into the New Year, which could cast a long shadow over 2023. Growth is important, but not at the expense of cash flow.
Mark Hook is a spokesperson for Inventory Planner by Sage.