Irish retailers must find a balance between absorbing cost increases and maintaining real value for customers
The retail sector is a key element of Ireland’s economy and accounts for 12 per cent of Ireland’s GDP. It employs around 300,000 people and generates annual sales of around 30 billion euros, which in turn generates tax revenues of 7 billion euros per year.
The sector has seen a transformation over the past two years as Covid-19 restrictions accelerated the development of digital offerings and a renaissance of regional and suburban stores.
Having overcome the obstacles posed by Brexit and the pandemic, most of the retail sector had envisioned 2022 as a year for growth and investment to take advantage of pent-up demand and a more open trading environment.
However, the positive outlook has been challenged in recent weeks by subdued consumer sentiment amid rising energy costs and economic uncertainty stemming from the war in Ukraine.
With rising labor costs and the long-term outlook for inflation, there are growing concerns among retailers about consumer spending.
Retailers must find a balance between absorbing increased costs and presenting a value-based proposition to their customers.
It’s not easy, but the following five actions can help support a sustainable business model and protect the long-term viability of Irish family businesses.
customer strategy
Not all customers will experience inflation in the same way – retailers need to take the time to assess their customer base and track their spending patterns.
Is there a noticeable change in shopping habits, e.g. B. Frequency, spend and loyalty? Is the offer aimed at the right strategic customer group? Should it shift to a value-based, price-sensitive customer, with appropriate promises being made – for example, “fair prices every day”?
Developing a partnership ecosystem with other retailers should be considered to expand offerings, meet customer expectations, and most importantly, secure alternative revenue streams.
A robust loyalty program that encompasses all of the above will also act as a differentiator in the marketplace and support recurring engagement.
range optimization
A targeted assortment strategy can be one of the most effective tactics to fully pass on inflation to price-sensitive customers.
This requires a clear understanding of which products can be delisted without impacting profitability or sales.
The goal is to eliminate duplicate products that meet the same requirement. Essentially, this means reducing the depth of individual categories without sacrificing the choices available. This targeted reach approach can free up working capital that can be reinvested in the price to help deliver a value-based proposition to the customer.
The “value” message
Retailers need to clearly communicate their value both in store and online and in their marketing collateral. What is the current consumer view of your brand?
Sometimes the market’s perception of being overpriced can be based on the store’s look and feel and the tone of the promotional material.
It may not match the reality of the proposal.
Family-owned independent retailers in particular need to show that value is made up of many ingredients: quality, provenance, accessibility, customer service and price.
For example, the adoption of a purely price-driven offer can trigger a discount spiral and is not sustainable in the long term. A corresponding private label offering can be used to fulfill the price element of a value proposition while at the same time strengthening the assortment and preserving the margin in inflationary times.
Near shore of the supply chain
Brexit and product sourcing difficulties caused by Covid-19 prompted many retailers to review their existing supply chain model.
I expect it will act as a catalyst for Irish retailers to use more Irish and EU suppliers, effectively moving their supply chain overseas.
With fuel and transportation costs rising, this will help retailers achieve the twin goals of managing their overheads while reducing their carbon footprint.
As well as mitigating inflation, it will also ensure these retailers meet government, supplier and customer expectations for future carbon emissions.
Embrace technology
Intelligent use of the latest retail-oriented technology can support the proper management of the cost base without compromising the quality of customer service.
It can effectively integrate the retailer framework from sourcing and ordering to sales, aligning both online and in-store channels and providing key insights into customer behavior and spending patterns.
Technology can also take over non-productive work tasks that enable employees to connect with customers, generate revenue and foster loyalty. It’s a key component to increasing efficiency and absorbing inflation while preserving value.
Irish retailers have a global reputation for innovation, standards and customer service. Fine-tuning these characteristics has been the basis of their strategy over the past decade.
Having weathered Brexit and Covid-19 – and currently facing a rising wave of inflation – retailers here need to apply resilience and agility as part of a strategic framework to drive a sustainable business model.
Progressive retailers recognize that their business plan and strategy must be “alive” and adaptable in an ever-evolving retail landscape.
As we all search for value in the coming months, let’s remember the values supported by shopping from Irish retailers: preserving local jobs and keeping our local economy alive. Can we really price this?
Owen Clifford is Head of Retail Sector at Bank of Ireland
https://www.independent.ie/business/irish/irish-retailers-must-strike-a-balance-between-absorbing-cost-hikes-and-maintaining-true-value-for-money-for-customers-41605923.html Irish retailers must find a balance between absorbing cost increases and maintaining real value for customers