The Retailer Autumn Edition 2022

THE RE TA I L ER

8

TALES FROM THE SHOP FLOOR - HOW RETAILERS CAN ACT IN THE FACE OF RECESSION

Dan Coen Managing Director AlixPartners

Richard Harrison Director AlixPartners

Matt Clark Managing Director AlixPartners

Clare Kennedy Managing Director AlixPartners

D ouble-digit inflation, rising borrowing costs, falling consumer demand sitting alongside the constant need to innovate, ESG concerns, supply chain challenges - you could could forgive Retailers for feeling like the world is against them at present. And the challenges don’t look to be abating anytime soon. With inflation predicted to peak at 13% by the end of the year, and with rises in the BoE base rate likely, consumer spending will be supressed further. Despite attempts by the (now-ex) Chancellor Kwasi Kwartang’s ‘mini budget’ to simulate growth, consumer spending is anticipated to reduce with Helen Dickinson, (CEO, British Retail Consortium) noting “consumer spendingwill be considerably constrained this winterwith inflation continuing to climb and energy bills rising further.” In fact, in recent times consumer confidence has only been lower during the 2008 financial crisis, and will likelyworsen over the coming months as the realities of rising energy, mortgage, and general inflation are felt by consumers.

Alongside the external market forces taking shape, the shift in consumer behaviour and demand is accelerating, creating newmarket dynamics that are difficult for retailers to predict, manage and strategically approach. “Metail” is on the rise, and consumers are constantly regrouping and changing according to social trends, identity politics, personal whims, and even time of day. So, given the tsunami of challenges facing the sector, what actions can UK retailers take now to weather this impending storm? The winning formula dominating board room agendas at present is a combination of “Back to Basics”, and the need for agility. Inventory - Back to Basics Retailers and brands are turning up the spotlight on inventory man agement best practices. With huge uncertainty clouding near term picture, there is an enhanced focus on investing and instituting the right processes, tools, and organisational structure to support the teams making the buying decisions to be proactive in inventory positioning before inventory becomes an issue. This required investment in forecasting processes that leverage AI, optimised open-to-buy, and developing tools for the teams to better develop buy quantities. Knowing your customers to understand demand forecasting trends, aligning up front before buys are put in at a corporate planning level, and then having the ability to ‘fast-source’ to react to demand all require agile decision-making. Inflation & supply chain – a double ‘whammy’ Cost inflation and supply chain disruption have continued to be an ‘existential’ crisis for retailers. It comes as no surprise that in our recent Turnaround and Transformation Survey, inflation and supply chain were cited as the top factors driving distress, with inflation the number one long-term challenge facing the global economy.

Consumer Confidence Index

104

102

100

98

96

94

Supply chain 37% 30% market inflation

what is the top factor driving distress?

92

Jan-19

Jul-19

Jan-20

Jul-20

Jan-21

Jul-21

Jan-22

Jul-22

UK Consumer Confidence Indicator

Source: ONS, OECD, Capital IQ

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Retailers now more than ever need to build agility into their DNA. Disruption will continue to challenge management teams, requiring them to be flexible and respond quickly.”