Retail takes the heat. Again.
4 min read
Almost three years ago, retailers around the world had to re-evaluate their strategy because of Corona. Now it is happening all over again. Driven by a new virus, inflation and declining consumer confidence.
Consumer confidence is on the decline, and all data speak that if you as a business are exposed to the consumer market, you need to re-evaluate your strategy. As always, retail is where it will hit first. This means that your investments need to ensure your effectiveness and that you have the preparedness to execute where consumers are. Three years ago, the significant issues were e-commerce and the supply chain. Today, the palette has expanded to include own brand/private label, more robust and more direct integration with suppliers and organisational efficiency - as the first retailers start to say goodbye to employees. Ironically, consumer marketing has never been more critical.
We have just been through it. External factors require significant changes if it is to navigate or change course. Quickly. In case anyone was wondering, these are big, sudden and significant changes that affect our ability to do business. These changes dramatically change the tectonic plates in the retail landscape. Many economists say these are not changes created only by an unfortunate war in Ukraine but changes accelerated by the war. They are also the consequences of a long period of unnaturally low-interest rates, now culminating in a situation where consumer behaviour changes dramatically. And quickly.
Unlike the situation we have just been through - where states have been able to step in with help and support, that is not the case now. Among the countries of Europe, the individual countries naturally have different economic conditions for responding to the situation.
But overall, the challenge is that nothing good will come from 'feeding the monster' - it will further boost inflation to come up with too many goodies to compensate for the rising meat prices. So retailers must be prepared for little or no external help to continue the current consumption pattern.
As always, when significant economic changes occur, consumers react first, and retail has to adapt fastest to catch the new trends. In just one year (from August 2021 to August 2022), the consumer confidence indicator has fallen from 4.4 to -25.1.
As a result, search behaviour has also changed. From searching for chain newspapers belonging to a specific brand, people now search for individual products. Loyalty is decreasing, and the need to find lower prices has, on the other hand, increased.
This naturally gives rise to the need to position oneself as an economically attractive alternative - and that competition has increased considerably. Most recently reported in Finans, where Coop, Salling, Rema 1000, and even Nemlig.com have initiatives underway to ensure the correct positioning and secure the consumer's trust. But in this space, Aldi and Lidl on the grocery side and a host of other B2C retailers are equally relevant to keep in mind. Beauty, Health, DIY, Fashion and the list goes on. All will be exposed to a need to publish more often - and sharper with relevant marketing and communications across channels to draw traffic and drive consumer preference.
As a retailer, you face a Gordian knot: on the one hand, you need to make sure costs are aligned. On the other, you need to escalate your marketing to ensure revenue. On top of that, the need to be able to adapt its activities more quickly has increased as the supply situation is unstable and price fluctuations are very high. In concrete terms, this means that the risk of changes in campaign plans is much more significant for the category and marketing as a whole and that the possibility of making changes is necessary up to publication.
This makes the time-to-market factor suddenly critical for the marketing set-up. The problem is evident in a situation with fewer human resources: the increased speed with fewer resources and more risks.
In this situation, it is typical that there is a risen internal focus. Eyes are taken off customers and competitors, and emphasis is put on processes and colleagues - because of complexity and pressure increase.
So now, the focus will typically be on finding the opportunities to mitigate and help retailers navigate safely in the new 'real-economic' waters. Opportunities that Encodify itself also describes in our latest Retail Point of View. These examples focus on securing revenue and eliminating costs, which is essential for many. The opportunities from our Retail Point of View are:
1. Own brands/private labels
This option is about increasing the share of affordable alternatives to established brands. This places high demands on effective collaboration between suppliers, categories and marketing. In return, it ensures the relevance of your offers and gives you control over your margins.
2. Retail Media
This option is about optimising and professionalising the well-known model of getting a larger share of the marketing budget from your suitable suppliers. But it requires shifting the focus from your negotiating power to leveraging all your media, data and ability to drive sales results and better understand your suppliers' brands.
3. Improving supplier relationships through integrated planning
This opportunity addresses the integration of suppliers into your work processes. It helps to eliminate bottlenecks and ensure better coordination and planning of commercial activities.
4. Organisational efficiency
Last but not least! This opportunity addresses the number one issue in most retail organisations: ensuring control over the organisation's marketing costs and increasing output simultaneously.
If there was anything we learned during Corona, it was that quick execution that reaps the rewards. The earlier we can identify relevant action items and execute them, the greater the reward over time. Agility and 'time-to-market' are not just fancy words. Speed matters and our ability to act on change can translate into margins and lasting competitive advantage.
Rarely has the ability to market oneself relevantly been more critical. Rarely has an organisation's ability to collaborate been more relevant. Rarely have the demands been this extensive. Retail takes the heat. Again.