6 minute read
British Independent Retailers Association (Bira) CEO Andrew Goodacre
Tips for inflationary times
Andrew Goodacre, CEO of Bira (British Independent Retailers Association), shares suggestions on how retailers can survive during an inflationary period and learn how to cut costs
With inflation higher than it was almost 30 years ago, many of today’s high street retailers will not have experienced running a business in such an inflationary period. In this instance, inflation is being increased due to cost price pressures rather than consumer demand - and that type of inflation is even more challenging for businesses to manage.
We have been taking the time to talk to Bira members to obtain some ‘top tips’ for retailing when inflation is increasing, and have identified four key areas for addressing inflationary pressures that all retailers need to consider: 1 Stock management
Probably the single biggest cost to a retailer is the cost of stock. We would urge you to consider the following: • The cost of stock sold is not just the original cost price, but more importantly the replacement cost ie the cost of buying the stock back in. That means that if you can increase the sale price of existing stock before you sell it, you have sufficient cash to replace it. • Stock up on key products if you expect costs to rise. If you think a product range will continue to rise, it would be wise to buy more stock now while prices are lower. Obviously, this is only possible if the business has the cash and is able to tie up more money in stock. With that in mind, best practice would be to focus on the faster selling lines so that the stock is moving. • Reduce stock range performance with the objective of removing or not reordering slower moving stock/products. This will reduce the amount of money being held in stock and will release cash to help finance the higher cost of other stock. • Secondary branding may be an option for some retailers: substituting ‘branded’ products with ‘own branded’ alternatives which are often cheaper. This must be done carefully, as these replacement branded products need to be of sufficient quality to not damage your reputation with shoppers. • Review supplier base/terms. Are you sure you are obtaining the best possible price, or the best possible terms?
CEO Andrew Greenacre
2 Pricing
Invariably, rising cost prices result in higher retail prices, with businesses keen to retain their normal profit margins. However, this is easier when the inflation is fuelled by consumer demand. Furthermore, the high street is much more competitive, especially with the large online companies disrupting the market. Understanding pricing strategies is a key retail skill. You need to think about the following options: • Increase prices little and often. Customers will notice larger, more infrequent price changes. So, it is best to adopt a smoother approach to pricing. More work, but worth it. A price rise to keep up with inflation may actually create more profit for the retailer. • Adopt a balanced approach and know your ‘Known Value Items’ (KVIs). A KVI is often a popular sales line, and the price is ‘known’ by the customer. For example, for supermarkets/ grocery stores, KVIs often include the cost of a pint of milk or a loaf of bread. These are items bought on a regular basis and often in isolation, so the customer becomes used to the price. • It is the cost of KVIs that often determines the perception of how expensive a shop might be in the eyes of the shopper. The strategy for KVIs should be to minimise the price increase on these products and spread any increases across the wider product range. Protecting the KVIs significantly increases the perceived value for money that you offer your customers. However, it’s not always easy to identify the KVI in every retail outlet. • When setting prices, base the retail price on the replacement stock cost, rather than the current stock cost. Most EPOS systems will do this for you, but you need to set this parameter. If you know new stock orders will be more expensive, the retail pricing should reflect that reality. This approach also allows the retailer to ‘smooth out’ the increases. • The reaction of the shopper. Ultimately the retailer has to remain competitive in an increasingly competitive market, and so it’s not always possible to retain the profit margins through price. Independents should know their local market but cannot take it for granted. If prices rise too much, demand may well suffer - and the retailer will be left with expensive stock on the shelves. • Use price promotions as a means of off-setting general price increases. 3 Changing consumer purchasing patterns
In the past two years, we have seen massive changes in the way consumers pay for their purchases. Card transactions have reached upwards of 58% of all retail transactions in the UK for adults aged under 45 years old. With this in mind: • Review the costs of taking payment by cards. Remember, it’s the debit card rate you should be looking at, as this - for most independent retailers - will be at least 75% of your card transactions. Ask for a review from your current card acquirer. • Look at new payment schemes such as Buy Now Pay Later (BNPL) for high value purchases. Last year, one in three adults in the UK used a BNPL scheme to buy goods.
4 Overheads
Retailers are experiencing the same pressures as suppliers in terms of rising energy and labour costs. All too often, people in general can be too apathetic when reviewing their costs. It’s therefore important for business owners to review all their overhead costs, especially some of the larger costs such as: • Energy: speak to your energy supplier and other suppliers to obtain the best rate possible. Some Bira members have already saved significant amounts by doing this. Bira has an energy partner called Energy Options and it’s certainly worth talking to this company. • Insurance: obtain a new quote rather than just staying with the same provider. Bira has a new insurance partner who can offer competitive quotes, and many Bira members have already saved a lot of money by moving to this partner. • Review opening hours in line with your sales trends: this may well save energy and labour costs. • Review staffing requirement for periods of the day: many retailers are now looking at revising working hours to reflect changing consumer store visits. You will need to take legal advice when changing staffing contracts, but flexibility is key now more than ever.
In conclusion, running a business in an inflationary period is never easy, but it is important to be proactive and consider your options. There are not necessarily any right or wrong answers - it’s about finding the best pricing solution/s for your business.
