With the heatwave just behind us, it seems indecent to raise the subject of Christmas. Nevertheless, this year makes Christmas trading more challenging than ever. With inflation increasing by the month, the squeeze on disposable incomes has already begun. So how ready is retail for peak trading?
A challenging outlook
The industry has never before seen the scale and speed of the cost inflation that has characterised trading over the past 3 or 4 months. How to deal with it is the number one challenge facing the industry right now. Everyone will have to pass price increases on – the question is, how much and when? Retail is a granular business and involves vast numbers of decisions for every season, across every product. Today’s more squeezed, more dynamic market means that what might have been hundreds of decisions to optimise trading is now thousands.
We are seeing the convergence of several critical strategic and structural factors across the industry. Growing capacity (stores and online) means that today, supply greatly exceeds demand. Online is much more price-led and as the channel’s share has exploded during lockdown, price has become much more dynamic. And with serious economic headwinds hitting disposable incomes, retail demand is softening. The inflation already mentioned is magnifying pressures. All this has elevated price to the top of the agenda but very few retailers have the systems and joined-up processes needed to cope with the scale of change which increasingly characterises this market.
Retail pricing capabilities
Making thousands of calls at SKU level very frequently is simply not possible manually. It requires the support of tech and pricing tools. Tools enable sophisticated demand forecasting across thousands of scenarios, with greater frequency. This can support the experience and intuitive judgement planning and merchandising teams are able to bring to bear.
This Christmas is going to be the most challenging for many years. In lockdown, most retailers were in the same boat. Dealing with inflation and pricing more generally is much more variable across the industry. It isn’t too late to embrace digital pricing tools to inform a much more dynamic approach to trading for this Christmas.
Most of our current discussions with clients across the various retail sectors are dominated by questions of price and inflation and how best to deal with it. Your price position is not, and cannot be, set in stone. There are a variety of ways to inject much-needed dynamism, not just for Christmas but for the Spring/Summer beyond.