Inflation continues to be a widespread concern for businesses and consumers as we head further into 2023. According to an October 2022 survey by Deloitte, more than 70 percent of consumers at that time said they’re concerned about the rising costs of their everyday purchases.
As a result, shoppers have begun changing their buying habits, focusing more on essential purchases and less on non-essential or luxury items. If you’re a specialty retailer (e.g., homegoods, lighting and more) you want to put steps in place to protect your businesses.
According to a recent PwC survey, 50 percent of consumers are “extremely” or “very concerned” about their personal financial situation, and luxury/premium products, travel and fashion are expected to be hit hardest over the next six months.
“If retailers are to thrive in this challenging macroeconomic environment and maintain consumer engagement, they must leverage and diversify their distribution channels, offer competitive pricing, invest in greater supply chain resilience, and compensate for customers’ increasing reluctance to share data online by better monitoring their customer base and loyalty programs,” says Sabine Durand-Hayes, Global Consumer Markets Leader, PwC France.
To help you navigate this challenging period, Lightspeed has put together action steps for dealing with inflation at retail.
1. Know Your Numbers
You can’t improve what you don’t measure. To improve your financial position in 2023, start by knowing key metrics and figures in your business.
The metrics to track closely include:
- Revenue – Always know how much you’re bringing in. Having a clear idea of how much money enters your bank account gives you insights you can use in business decisions. For example, if you notice your revenue trending down, you can get ahead of the issue by coming up with ideas to drive sales.
- Gross and net profit – It’s ultimately about how much money you keep. Pay attention to your profits after taxes and other expenses.
- Monthly expenses – Cost-cutting is often necessary during times of economic uncertainty. Review your expenses and identify areas where you can spend less.
From there, you can dissect your data further. You can look at your revenue and profits at a product level to figure out which items are actually making you money.
2. Consider price increases carefully
If your business is suffering as a result of rising costs, it may be time to increase prices. This can be tricky; a price increase rarely bodes well with consumers, even when necessary.
The right pricing strategy will vary from one business to another. For some stores, it’s best to do an incremental price increase for select products. For others, a more aggressive increase across the board may be needed.
To figure out the best course of action, look at revenue and profit margins. If a particular category is suffering from tight margins, then it may make sense to increase prices in that area, but not others. On the other hand, if profitability is a widespread issue in your business, then consider doing a catalog-wide increase or identifying your fastest-moving products and repricing those items.
If you run multiple locations, you may find that inflation or consumer price sensitivity is worse in certain areas. If this is the case, then raising pricing in select states or cities may be the best move.
Educate your sales associates on pricing strategies. Your team will likely have to field questions from customers, so it’s important to equip them with the right information and talking points. Focus on conveying value and assure customers that raising prices allows your business to serve them better.
3. Market to existing customers
It’s more cost-effective to sell to existing customers than it is to market to new ones. While you shouldn’t neglect customer acquisition, a strong customer retention strategy allows you to extract more value from shoppers.
If you haven’t done so yet, devise a plan to reach and convert existing customers.
Consider the following ideas:
- Treat your VIPs. Give your top spenders exclusives or perks — such as early access to promos, special events, etc.
- Reconnect with dormant customers. Identify shoppers who haven’t bought from you in a while, and re-engage them with a “we miss you” message.
- Launch a loyalty program. Keep customers coming back by rewarding them with points or dollars that they can redeem in the future.
Customer retention is both an art and a science. Consider automating with tools to help execute your customer-retention strategy.
Whatever the case, look at metrics (revenue and profits) and plan accordingly.
For more tips on serving your customers while maintaining a profitable business in today’s economy, visit lightspeedhq.com/blog/deal-with-inflation-retail
