“Indies must balance cost pressures with customer satisfaction to survive cost-of-living crisis”

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  • Written by Jamie Saucedo, senior vice president of business operations, PFS

Prices have risen at their fastest rate for 40 years, with UK inflation hitting 10.1 per cent in July. As the cost of living continues to skyrocket, consumers are starting to cut back on their spending – and it is predicted that hospitality and retail will feel the brunt. According to recent reports, consumers are most likely to cut back on eating out and fashion as they adjust their spending to cope with rising costs.

With price hikes showing no sign of slowing down, consumer confidence in the UK has fallen to its lowest level since 1974. Despite a slight rise in overall retail sales in April (1.4 per cent) as the UK continues to bounce back from Covid, this could be short-lived amid further economic uncertainty.

The competition between retailers is now tougher than ever before as consumers have less in the way of disposable income to spend on items deemed non-essential. Now, more than ever, indies must work hard to maintain customer loyalty in order to secure their hard-earned cash, while also being cost-conscious when it comes to their own operations.

The other side of the coin

Of course, consumers are not the only ones feeling the squeeze right now. Retailers are also facing spiralling costs across the board including energy, transport, staff and products. According to a survey by Logistics UK, almost three-quarters (71 per cent) of logistics firms are reporting an increase in shipping costs that “many businesses will not be able to absorb.”

With no option but to pass these costs onto consumers, retailers and brands are expected to enter a vicious cycle that could see sales and profits continue to drop. For many retailers, this comes at a time where finances are already strained as a result of the lingering impacts of post-pandemic recovery. In fact, earlier this year, while vowing to keep prices statics for at least a year on its own-brand essential items, health and beauty giant Superdrug admitted it was facing increased pressure to raise prices. However, with the cost-of-living crisis placing increasing pressure on consumer spending, this doesn’t come without substantial risk.

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Striking a balance

As online marketplaces become increasingly saturated, the face of brand loyalty has altered significantly and consumers are considering cost as a key factor to the optimal shopping experience. In fact, our own research found that when asked about the most important factors influencing their decision to make multiple purchases from the same brand/retailer, consumers were mostly driven by free delivery (37 per cent) and competitive/attractive prices (33 per cent). In the UK especially, shoppers are more driven by cost than brand loyalty, with 31 per cent of respondents agreeing to this statement.

Retailers therefore must balance their own cost pressures with the satisfaction of their customers to retain their custom and avoid them turning elsewhere to find a better deal. That said, this doesn’t mean automatically cutting prices or devaluing products. Balance means finding ways to boost efficiency where possible – and in doing so – minimise the impact of inflation on customers.

Optimising resources

The first option when faced with rising costs is to look for alternative fulfilment solutions. Existing infrastructures that require significant investment, for example, can be repurposed, ensuring space is being fully maximised. Retailers can look to a BPO to help offset inflation and could look beyond a centralised warehouse model and consider optimising existing physical store space to work harder and smarter.

With the right order management system and picking technology, brands can transform their brick-and-mortar sites into multi-node distribution facilities – making the space work twice as hard by fulfilling the needs of both in-store shoppers, while also being able to support online demand. This can also be effective in reducing the distance between product and customer, therefore cutting back on the mileage and costs associated with delivery.

Cloud-based order fulfilment picking solutions will also prove valuable here. These flexible order picking solutions can be easily integrated within existing systems and can help increase distribution efficiency, by not only speeding up the picking process but increasing picking accuracy. Improved accuracy in these areas can ensure money isn’t wasted from returning incorrect products, while also ensuring greater productivity per man-hour.

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Renewing confidence

While there are steps retailers can take to optimise resources, cost rises are inevitable and businesses will need to consider other methods for retaining customer loyalty during this period of flux. To do so, indies must become more strategic, leveraging other elements high up on the priority list for consumers – including convenience and consciousness. According to our research, over half (54 per cent) of consumers prefer to have the convenience of multiple return options to keep up with their busy lifestyles. Meanwhile, 35 per cent named sustainable packaging, delivery and returns options at the checkout as key parts of the ideal shopping experience. Retailers may not be able to gain complete control over costs in the current climate, but they can ensure they keep up with these other expectations to maintain loyalty and trust.

Leveraging the start-up mentality around personalisation and value-added services can also be a great way of standing out from the crowd and remaining competitive during this time. From engraving to embroidery, even adding a personalised label to packaging, which doesn’t come at a huge expense for the business, can go a long way in providing value to the customer.

Customer experience should also be a key consideration. When cost pressure rises and consumers are shopping with an every-penny-counts mentality, tolerance around the service they receive will be at an all-time low. Higher levels of frustration may be felt if an order is running late for example, or a mistake is made, and the wrong product arrives. Customer service teams must therefore be equipped to deal with enquiries quickly and seamlessly – and from a range of channels. While there may not be internal resources available to do so, outsourcing customer care teams can be a cost-effective solution to this problem.

Consumer confidence may be low currently, but this will not always be the case. Retailers that can appeal to and retain loyalty while times are tough will continue to reap rewards in the future.

Jamie Saucedo is senior vice president of business operations for e-commerce fulfilment provider PFS.