Retailers plan to cut operating costs and improve cashflow by reviewing their supply chains and renegotiating terms. Better data will ensure the most effective changes.
By Ben Balfour, chief operating officer, Advanced Supply Chain Group
As retailers head into the peak Christmas trading season, the cost-of-living crisis is already hitting sales, and the next year is not expected to get any easier. We surveyed 100 UK retailers with more than 250 employees last month (September), and 65% of respondents said rising energy prices and other costs impacting consumers’ spending power are already having a negative impact on their sales.
Looking ahead, 77% of retailers expect the value of their sales to fall over the next 12 months, with 42% predicting shoppers will seek out more discounts and 38% expecting them to buy less, when it comes to non-food purchases.
Considering the intense pressure on household incomes, with the Bank of England forecasting that inflation will remain above 10% in the coming months and rising interest rates pushing up mortgage costs, this negative outlook among retailers is not a surprise. However, what stood out to us from the survey results is what retailers are planning to do to ensure they can ride out the downturn.
To reduce operating costs and improve cashflow in the year ahead, the three top responses from retailers related to changes in the supply chain: 40% plan to review their supply chain to find efficiencies, 37% will renegotiate terms with suppliers, and 29% will go as far as replacing suppliers entirely and finding new ones. These actions came in ahead of reducing sales and marketing budgets (24%) and cutting staff (20%). Only 13% are planning to close bricks and mortar stores.
Pinpointing costs
Specifically, half the group seeking supply chain efficiencies to reduce costs and protect margins will review warehousing, while 35% will look at order fulfilment and another 35% will reassess domestic freight and transport costs. Companies based in the North West, the South East and greater London are the most likely to review their supply chain, while London and the South East-based retailers are the most likely to find new suppliers altogether.
At the same time, 46% of retailers plan to spur demand by adding new, lower-priced products and 31% by investing more in promotions and discounts. This will have an impact on their supply chains too, as demand patterns shift and volumes become more volatile, depending on the success of various promotions.
To ensure they get the maximum benefit from planned changes in the supply chain – with minimum disruption – retailers need access to the most accurate, timely data. Vector, our bespoke supply chain software, gives retailers an integrated overview of how their supply chain is performing, bringing together information from all their sales channels, warehouses and order fulfilment sites. This enables companies to identify where they’re incurring costs and make improvements quickly.
Building resilience
This overview is more important than ever when there is so much uncertainty around consumer demand. Access to high-quality data, for example on stock inventory, also lets retailers plan for a range of scenarios, building up their ability to respond in an agile way.
With UK consumers and businesses alike dealing with a seemingly endless stream of economic shocks, resilience for retailers will come from being as well informed and well prepared as they can be.
