How businesses can emerge stronger from the retail slump
Read time: 4 mins Added: 13/01/2023
There is a perfect storm hitting the retail sector amid higher prices and lower consumer confidence. But there are steps that can be taken to weather the storm effectively and emerge stronger when the rain clouds lift.
Consumer sentiment has taken a serious knock. In the second quarter of 2022, the Scottish Consumer Sentiment Indicator stood at -9.3, having fallen by 9.9 points since the first three months of the year1. That represents the largest fall in the composite index since 2020, as the ongoing economic and financial challenges take their toll on households.
We know that consumer confidence underpins the entire retail sector, because when shoppers have less discretionary spend available, optimism fades. So how can retail businesses address the ‘consumer optimism’ gap and stay competitive?
Focus on little luxuries
“A fall in consumer discretionary spend will likely hit big ticket items the hardest," explains Marc Ward, Area Director SME Banking. “But equally, consumers do often purchase small pick-me-ups during difficult economic times.” This is the well-documented ‘lipstick index,’ coined by Estée Lauder’s Leonard Lauder2, and is as evident today as it has been during previous downturns.
While people may not buy an entire outfit or other big-ticket items like a sofa, they might treat themselves to small beauty luxuries, like a lipstick or mascara, or upgrade elements of their food shop, buying posh chocolate or coffee, for example.
Are you able to tempt shoppers with small-ticket premium products that might satisfy that need? Could you stock more of them or make them more prominent?
Do your research
It is important to stay relevant to your customers, so ask for feedback to better understand them. Seek to ascertain:
- What do they like about your product or not?
- What do they want to buy more of now?
- How much are they prepared to spend?
Are they sustainably minded eco shoppers, willing to pay a premium for ethically sourced products or those made of recycled materials? By researching your buyer group, new sales opportunities may emerge. For example, many bike shops now serve coffee. Consider what else you could do or sell that would encourage shoppers to spend more time in-store or on your website.
Marc Ward notes: “Think, too, about methods to drive repeat purchases – through online stores, delivery services, email marketing and social media presence, for example.”
Subscription services are also increasingly popular with consumers whose expectations and attitudes to deliveries have changed since the pandemic. Services of this nature lend themselves well to the food and drink sector but are also becoming more prevalent in fast-moving consumer goods sectors like razors and cosmetics. Do you have a product or service that could be packaged and sold on a recurring basis?
Price evaluation
Higher energy and transportation costs are among the biggest costs to the retail sector, compounded by supply chain issues.
You may have already passed these cost increases onto consumers, but another price revaluation might need to be considered to remain competitive. Even in demanding times, there are plenty of people willing to pay for quality and experience, so consider carefully where to increase prices and to what extent.
Where you do pass on increases, communicate clearly with your customers to help them remain loyal. For example, a bout of avian flu last year created egg shortages. Prices had to go up, but it was well communicated by supermarkets and covered in the media, allowing customers to make an informed decision without too much ill feeling towards vendors.
Source support
Your bank may be able to help. For those suffering from short-term cash flow difficulties, why not talk to us about any ideas for growth you may have, or look up the range of insights, ideas and guidance through our Business Resource Centre.
The Scottish Hub for Regional Economic Development is another great source of help and support. Its network of Regional Economic Partnerships across Scotland brings together local government, the private sector, and other agencies to champion regional economic growth and prosperity.
Finally, it’s important to recognise that it won’t last forever. Markets suggest that inflation is likely to peak in the coming months, along with a settling of the labour market and easing of wage pressures, which, Marc Ward comments, would begin to deliver more certainty to business and consumers with more confidence and greater spending power as time progresses. “This confidence should translate into higher demand for retailers – therefore it's important to manage your current challenges as best you can so you’re ready to benefit from a better economic outlook in the months and years ahead.”