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Less hands make light work: easing impact financial stress on UK retailers

Almost every person in the UK has been affected by the various economic issues currently plaguing post-pandemic pockets. While discretionary spending is reigned in for the majority, many are forced to re-evaluate even essential purchases. When consumers face financial pressures, the effects soon filter through to afflict retailers.  

At the root of this predicted drop in consumer spending is the “triple threat” of the cost-of-living crisis, inflation and the end of national lockdowns; in short, people are spending more time doing things other than shopping, especially shopping online.  

The cost-of-living crisis comes with hikes in price for almost every household expense – primarily the unprecedented surge in the energy price cap in April. The most recent report by the Office for National Statistics (ONS) highlights how retail sales volumes in the UK dropped by 1.4% in March. Purse strings are tightening to accommodate the upward trajectory of prices, which is expected to continue through the coming months.     

On top of this, the highest inflation rate seen in over 30 years is also putting pressure on retailers to make the choice between upping their prices to mitigate the fall in sales like fast fashion giant Primark, or take the hit themselves by lowering prices, as supermarkets Morrisons and Asda have opted. Slashing prices may be a decent short-term measure to remain competitive and hold onto customers. However, ultimately retail decision-makers will find bearing the brunt of these costs unsustainable in the context of their long-term growth objectives. 

Disruptions to supply chains across the world are only compounding the deteriorating situation, which has the potential to disarm even the strongest retailers, should they fail to adequately prepare and invest in reinforcing their bottom line. 

Post-pandemic race to recover  

In-store retail was all but decimated by the pandemic, but many shops have bounced back. Despite decreases across much of the board, real inflation-adjusted sales in categories related to the reopening of services are bucking the trend. Kiplinger’s economic forecast report especially noted that sales of sporting goods surged in March, as did restaurant, clothing, electronics and general merchandise sales.  

Many online retailers experienced a phenomenal surge in sales during the pandemic with many physical stores closing, and comfort, ease and efficiency becoming top priorities for shoppers. Conversely, now, online sales are suffering as a result of lower levels of discretionary spending. Non-store retailing is the largest contributor to the fall in sales volumes, falling by 7.9% over March, suggesting online sales may have hit their ceiling since pandemic growth. 

Customer-centric… and cost effective 

Survival and success throughout these crises will be found in two key areas. Firstly, the external – investing in customer experience throughout the retail process to identify opportunities to maximise each consumer’s sales potential. And secondly, the internal – retailers looking inward at the supply chain to minimise costs and wastage, and in turn alleviate the burden on the consumer.  

Re-instilling consumer confidence and maximising the sales potential from customers is fundamental to recovery. However, if retailers are unable to lessen costs through their supply chain, they will continue to face significant challenges.  

Both objectives can be achieved through strategic and effective use of smart AI and robotic automation tools. There are opportunities throughout a retail supply chain for such systems to revitalise and create resilience in the face of financial pressures, for a truly omni-channel approach to retail.  

To break this down on a more granular level, we can look at 3 key aspects: 

  1. Demand forecasting and planning 
    AI-powered forecasting can reduce errors by 30 to 50% in supply chain networks. Predictive analytics allow for better budgeting and informed pricing decisions. Mckinsey Digital found that a decrease of around 10 to 40% in inventory out-of-stock situations and warehousing costs, subsequently reduces demand errors, resulting in up to a 65% reduction in lost sales.   

  1. Warehouse and fulfilment  
    Using AI and robotics to automate the tracking, handling, and distribution of products solves a range of issues. For retailers, it can cut down on the costs caused by human error and aids with workforce shortages. The returns process can stifle profit potential for businesses, so it is a worthwhile investment to remove this margin for error and move product back into saleable inventory faster. For consumers, it speeds up delivery times, providing them with a better retail experience and incentivising them to buy again.  

  1. Overall supply chain optimisation
    Overall smart data analysis can cut through the complexity to give retailers an informed vision on the efficiency and cost-saving measures required at each disparate node on the supply chain. A solid proportion of companies analyse big data, but only a small percentage are actually using AI technology to do so, which costs them opportunities to make logistics streams far more efficient.  

Battening down the hatches with automation and AI investment 

One of the greatest benefits of robotic automation and AI investment, is improved alignment between sales channels. The supply chain of the future will use a single omni-channel interface to track and manage all operations from a single interface. When aggregated, data can provide predictions which facilitate process improvement across physical and online consumption. 

When investing in these systems today, and creating an optimised, harmonious supply chain, retailers are set to have a major competitive advantage over their rivals. While the market is under such gruelling economic pressure, this will place them in a far safer position to weather the storm. 

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