How can retailers mitigate a fall in consumer spending?


This article is brought to you by Retail Technology Review: How can retailers mitigate a fall in consumer spending?.

By James Newman, Director of EMEA for GreyOrange.

The national cost of living crisis in the UK is hitting critical levels for consumers. Millions of UK citizens are being forced into financial situations where they must cut back spending significantly, and the most harshly affected are having to cut back even on necessities like heating. The national insurance hike, sky-high inflation rates, and rising energy costs are just some of the major factors squeezing UK wallets.

The British Retail Consortium (BRG) recently revealed that UK retail sales growth has slowed from 6.7% to just 3.1%. This drop reflects the preparations that UK consumers are making to cope with the full effects of rising energy costs and increasing taxes.

UK retailers, already buffeted by the effects of Brexit and the global pandemic, are facing serious consequences if they are not able to ease the financial burden on their consumers. Alleviating that burden without taking a hit to their bottom line is now mission-critical for retailers to avoid raising prices further.  

The factors undermining supply chain resiliency 

Widespread supply chain disruption has been experienced globally since the start of the pandemic, which exposed its original fragility. Some retailers have taken extreme measures to secure their supply chain. German retail giant Lidl have gone as far as to create its own shipping line to ease transportation delays throughout the supply chain crisis, for instance. Lidl’s goal is to more flexibly manage the variance in the output of different production facilities long term, which has always been an issue for logistics to solve.  

Lidl’s shipping line strategy highlights a fundamental problem with a linear supply chain however- it is extremely difficult to flexibly adjust output to meet fluctuating demand.

There are two main reasons that it is difficult to adjust the output of a facility: labour and equipment. Much of today’s supply chain is built on the 'lean' principles of minimising costs e.g., no overproduction, automating as much as possible, and the ‘just in time’ hiring of workers, but the great resignation has created a labour shortage, forcing retailers to spend more on workers to keep up production. Warehousing has also been in short supply and in high demand since even before the pandemic, which has caused prices to increase as e-commerce becomes a preferred shopping channel.  

Innovation is required to afford retailers the ability to fortify the resiliency of every node in the supply chain. Warehouses, production facilities, distribution centres and high street stores are all nodes that are yet to adopt technological advancements that future proof them against unforeseen disruptions. Embracing these new solutions broadly across these nodes would likely have a significant cumulative cost savings effect, as they upgrade the resiliency, scalability and efficiency of each point. 

Intelligent supply chain fortification

Automation that applies a combination of smart software and robotics through a platform stands as an innovative solution to reinforcing the overall agility of the supply chain. Smart AI in fulfilment can be used to analyse available fulfilment resources in real-time, including inventory, people, processes, and robotics. This can be paired with real-time analysis of consumer spending patterns to predict the most efficient allocation of resources to meet fluctuations in demand.  

For retailers that are embracing the shift towards online shopping as the preferred consumer channel, they can turn their high street stores into micro fulfilment centres, which serve as miniature warehouses, storing inventory to enable faster online order fulfilment. These micro fulfilment centres are most effective when inventory is analysed through an AI platform to determine the most efficient placement of each article within that store and against other stores and fulfilment nodes, such as distribution centre. 

The result of efficient resource allocation in the future will transform the supply chain away from the linear shape and into a web shape, with advanced data analytics predicting and executing the precise allocation of each resource.  

Extracting full value from AI in the supply chain 

Deploying an AI platform across the supply chain is no simple feat, however, and there are several barriers for brands to tackle before they are ready to adopt an integrated AI solution. One of the most obvious barriers to overcome when deploying any new technology across a business is transparency and integration. As such, it is of paramount importance to ensure that every node, and every solution in those nodes, are compatible with each other.  

As with any long-term project, careful planning is required to identify the nodes that require the most upgrading. All supply chains have different requirements. For example, online retailers may need to invest more heavily in streamlining their returns process, while global brands will need to invest more in acquiring timely regional data.  

Consumers are resilient, supply chains are not 

The forecast remains bleak for retailers that resist fortifying their supply chain through technology. Even retailers of inelastic goods such as food are seeing significant reductions in their sales during the cost-of-living crisis, and innovation is required to mitigate some of the drop in revenue. 

Maximising efficiency through the use of specific solutions in disparate nodes, integrated with complex data analysis in a smart AI platform across the entire supply chain stands as that innovative solution that retailers must invest in soon, to take control of one of the only extraneous pressures that they can. Consumers are already displaying the incredible lengths they can stretch to in order to save money, and retailers need to find a way to mitigate this drop in revenue.

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