At our latest 4C Retail Dinner Club event we pulled together some leading minds from the world of retail and supply chain to discuss the highly relevant topic of “How can retailers successfully navigate through the cost-of- living crisis?”. Our focus was understanding the importance of Range Development, Price and Promotions and Strategic Supplier Management in ensuring that retailers were maintaining/growing their sales and remaining profitable in what is a very challenging and uncertain period for everyone in the retail sector.
The event was expertly chaired by Steve Collinge, MD of Insight Retail Group, with the conversation starting on the importance of range optimisation within retail businesses. There seems to be a mixed view amongst retailers when it comes to range optimisation – to expand and reach more customers or to consolidate to the core and control supply chain costs? It was the view of the panel that both approaches have their benefits and disadvantages, but range alone isn’t the deciding factor on how successful a retailer is.
Jon Wiltshire, ex Commercial Director at WH Smiths commented that “more range can have diminishing returns on investment” and “any significant increase in ranging has to be weighted up against supply chain efficiencies”.
Ed Bradley, Founder and CEO of Virtualstock, Europe’s leading platform that enables retailers to offer extended ranges online through a dropship model discussed how offering extended ranges online using dropship models can take pressure off the front end of retailer’s supply chains whilst offering their customers wider ranges to choose from.
One thing that was unanimous, was that ranging decisions cannot be a siloed decision made by the commercial teams – ranging decisions need to be owned and influenced by multiple business functions such as Supply Chain, Marketing, Digital and IT. The second point that all the delegates agreed jointly upon was that ranging and range changes in isolation isn’t enough to drive sales – “The challenge with understanding the impact of making range changes is there are many other factors at play such as marketing, price and promotions, and without addressing those alongside ranging decisions, range changes are unlikely to yield the desired results”.
While the food continued to arrive in unrelenting volumes, the discussion moved on to effective ranging channels and the multitude of options retailers now face when deciding how to get their products into the market. For all retailers, the threat posed by Amazon is ever-present, so retailers need to understand if selling their ranges from their own platform is sufficient or whether they should expand range availability on external selling platforms. Steve shared how he has witnessed a leading DIY retailer trialling their ranges on eBay to reach more customers. The trial proved to be extremely successful with 95% of those customers who shopped the retailer’s products through eBay never having shopped at that retailer before.
Widening the reach of their ranges through concessions/partnerships is also widely considered with recent examples from The Entertainer’s tie up with Tesco, where the Entertainer’s ranges will effectively replace Tesco’s own ranges in stores and offer efficiencies for both parties.
Summarising the discussion above, everyone agreed that range expansion isn’t just about the product, it should also incorporate the decisions on how customers access the ranges, so having a clearly defined set of channel strategies is as critical in the ranging process as the product itself.
Moving on, we discussed the likely impact the cost-of-living crisis is to have on consumer spend. It’s evident that a large proportion of consumers are likely to see a significant reduction in their discretionary spend, which will impact retailers in various ways. What customers spend their money on will change, but there is also another group of customers who will continue spending. Different demographic groups will react differently to the cost-of-living crisis, so retailers need to ensure that they have a strategy to ensure that they hold on to their loyal customers through offering the right products, at the right place, at the right price.
To conclude the evening, we touched on how retailers were approaching the topic of long-term sustainability. There was unanimous agreement that there was no “one size fits all” when it comes to sustainability in retail and that retailers were addressing it in different ways. We used Patagonia as a prime example of a retailer that was addressing sustainability head on by offering to repair clothing that was bought from them – what can other retailers learn from Patagonia? What part can recycled / upcycled / reconditioned products play in retailer’s ranging decisions?
The observation was made that the cost of returns is so high some retailers are charging for returns. Anecdotal examples discussed suggest retailers recover as little as 10% of the products value once it has been through the costly returns process prompting discussion from the 4C team that commercial buying teams should be targeted on reducing return rates, maximising resale values of returned items and better management of obsolete stocks as this would potentially drive more significant margin gains in the end-to-end category performance, than traditional trading strategies.
The event was held three days before the new Chancellor’s ‘mini budget’. Since then, sterling has crashed to an all-time low versus the US $, and the BoE has had to step in to calm the markets. All this is heaping additional pressure on retailers who were already facing significant operational challenges. Whilst retailers may not be able to directly influence government policies, they can certainly influence their own ranges and ranging decisions to ensure they continue to trade effectively through the current market conditions.
4C Associates have a diverse set of Service Offerings which can help retailers manage and mitigate costs, optimise ranges and drive data driven pricing and promotional decisions. Contact Andrew.davidson@4cassociates.com to discuss how 4C Associates can work with you to navigate these exceptionally challenging trading conditions.
