Prolonged squeeze on consumer spending expected, and retailers aim to build resilience by bringing down costs in the supply chain
By Caroline Ellis, Commercial Director, Advanced Supply Chain Group
2022 has clearly shown us that when it comes to predicting the future, change is the only certainty. But retailers have to plan ahead, and when it comes to 2023, their outlook is understandably cautious. The Bank of England does not expect inflation to start falling significantly until the middle of next year, and for it to stay above the 2% target until late 2024. The government’s energy bill price cap will also be reviewed in the spring, adding to the uncertainty felt by consumers.
We surveyed 100 UK retailers with more than 250 employees in September, and their views about the length of time the current pressures on consumer spending will last, are in step with those of the Bank of England. Some 41% expect the cost of living crisis to negatively affect the sale of non-essential, non-food items for two to three years, while 20% expect a negative impact for one to two years.
In terms of what this will mean in practise, almost half (49%) of respondents plan to change their retail strategies over the next two to three years. Within that group, 53% plan to change their pricing model to prioritise low-priced goods, 41% plan to rationalise and streamline their operations to bring down operating costs, and 33% plan to make their supply chains smaller to reduce mileage and costs.
Looking at specific categories, the greatest number of retailers expect sales of jewellery and watches to be negatively affected (45%), followed by fashion accessories such as bags (39%), and furniture (35%). The most resilient non-food categories are expected to be skincare and haircare, then shoes and trainers.
Effective changes to build resilience
So how can retailers prepare for these changes, while also remaining agile enough to deal with unforeseen forms of disruption that may alter their priorities over the course of 2023? Our survey shows they are seeking to build resilience by reducing their operating costs and improving cashflow in the year ahead, and the three top ways they plan to do this are through changes in the supply chain. Some 40% of respondents 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.
Our bespoke supply chain software, Vector, gives retailers access to accurate, timely data, to ensure they get the maximum benefit from supply chain improvements. It brings together stock data from all sales channels and across multiple warehouse and order fulfilment sites, as well as tracking freight status, to create a detailed, integrated overview. This enables companies to identify where bottlenecks are occurring and where costs are building up to make changes quickly. They can find efficiencies and room for improvements that will benefit their bottom lines.
Retailers also need to take action to protect margins. 86% of survey respondents who plan to cut retail selling prices in response to the cost-of-living crisis, also expect margins to be lower. Accurate supply chain data can protect profitability by helping retailers make rapid decisions, such as moving stock out of an online warehouse and into a high street store, if that is where the demand is greatest.
Arming themselves with the most accurate data won’t help retailers see into the future – but it will help them to make informed and effective decisions in an uncertain year ahead.