The Changing Face of Retail: How Smarter Supply Chains Can Overcome a Global Challenge

Retailers have experienced a challenging few years. First the pandemic hit, transforming the high street and retail landscape. Next came Brexit, and changes to import and exporting duties. Then came the conflict in Ukraine, causing shortages of many core goods and shipping and freight challenges that have been felt worldwide.

Goods and materials aren’t being manufactured in the same volumes as before and raw materials shortages and order backlogs have all impacted supply chains, with 39% of middle market businesses being affected in the past 12 months.⁽¹⁾ Importing is now more costly, takes longer and can be unreliable.

 At the same time, the focus of retailing has shifted. Retailers are heavily invested in improving the customer experience to build brand loyalty and entice new customers. Customers not only care about what they are buying, but who they are buying it from. Initiatives such as next day delivery, collect in store and experiential shopping have all become commonplace, as retailers endeavour to remain competitive.

All these factors are putting a huge pressure on retailers’ margins. In the past, retailing was driven by a ‘just in time’ model, carefully honed to minimise upfront expenditure, accelerate stock turnover and order only what was needed, when it was needed. In today’s climate, inventory needs to be kept flowing and enough of it be readily available to meet demand. 

Even the smallest retailers have been forced to reconsider their supply chains’ operation. While not every business can afford the sophisticated AI-driven logistics and analytics employed by larger companies, building better relationships with suppliers and forward planning is mitigating many challenges. An optimised supply chain model can keep customer expectations met and the supply chain moving. Rather than ‘just in time’ ordering, a ‘just in case’ model, where contingent stock is held, and demand is managed is helping to alleviate shortages. Warehouses are being better configured and optimised to ensure that all goods in and out are fully tracked, and less popular lines are being replaced with faster selling ones, ordered in greater volumes, to help balance the books.

Smarter retailing, such as mixing retail spaces and online order fulfilment from the same location is helping to manage inventory, giving customers collect in store options they may not have had before.⁽⁵⁾

With Christmas fast approaching, retailers have a golden opportunity to sell - while many consumers will be cutting unnecessary expenses through the last quarter of the year, they have been shown to be notoriously reluctant to cut back on Christmas festivities and its associated spending, with 45% intending to make this Christmas bigger and better than ever.⁽²⁾ 

Research shows that consumers are planning on starting their Christmas shopping early this year – as many as 44% intend to have theirs wrapped up before Black Friday.⁽³⁾ This is great news for retailers – those last minute, Christmas Eve surges to purchase will be dramatically reduced, enabling them to spread ordering throughout the last few months of the year and help ensure stock levels can meet demand.

As we discussed in our last post, many shoppers are turning to sustainable and environmentally-friendly gifting, with as many as 40% planning on a more sustainable Christmas.⁽³⁾ Retailing locally-made and sourced items not only reduces the risk of supply chain challenges, but it can be an effective marketing strategy to sell local goods with transparency of origin – something that many customers are receptive to.⁽⁴⁾

Relationships now matter more than ever too - not just between retailer and supplier, but also between customer and retailer - effective communication and marketing strategies can encourage shoppers to consider alternative items, or to purchase early. Both can help ease the surges that are typically seen at Christmas, helping retailers to manage demand. 

With a new Prime Minister in place, making direct decisions with energy price freezes, this should take the pressure off businesses as well as households. Staving off potential inflation hikes, while giving consumers more confidence to spend the extra pounds in their pockets to stimulate the economy. While the world is undoubtedly in for a bumpy few years, retailers need to do things differently – at least temporarily. And there are good things to come – earlier this year, the UK government announced the construction of eight new freeports around the UK, giving retailers a tax-friendly opportunity for importing goods and easing supply into the country.⁽⁶⁾ Inflation will have hopefully now peaked  before starting to drop once more.⁽⁷⁾ With customers open to shopping locally and sustainably, meeting their demands will be an opportunity for savvy retailers to flourish once the economy inevitably regains its momentum.

References:
1.https://internetretailing.net/growth-2000/%EF%BF%BCsupply-chain-woes-for-retailers-are-here-to-stay-as-multiple-pressure-points-mount/
2.https://www.businessleader.co.uk/cost-of-living-wont-deter-from-christmas-spending-data-reveals/ 3.https://ipa.co.uk/news/christmas-amidst-the-crunch/
4.https://365retail.co.uk/latest-retail-report-shows-buyers-are-embracing-change-as-they-continue-to-navigate-supply-chain-pressures/
5.https://supplychaindigital.com/digital-supply-chain/retail-seeking-supply-chain-agility-in-omnichannel-world 6.https://www.pwc.co.uk/services/tax/insights/uk-freeports-an-opportunity-for-trade-and-investment.html 7.https://stats.oecd.org//Index.aspx?QueryId=72646