Managing The Perfect Storm

During 2020, we all know that retailers and suppliers in the Home and Garden industry experienced high levels of un-forecast demand.?What wasn’t expected was the tsunami of supply issues and disruption that followed in 2021, from raw material shortages to price increases and dramatic increases in container costs.

Supply chains from the largest retailers to the smallest brands have been tested like never before. The many empty shelves I’ve seen as I began visiting stores again in May, stood testament to how many of these supply chains have failed, leading to significant levels of lost sales and declining profitability.

Home Improvement retailers and manufacturers continue to face the perfect storm, but the challenges impacting on businesses today, are far wider than just those affecting just supply chains. The pressure on businesses is being generated by five key trends that are currently shaping the UK’s retail and consumer landscape.

Managing Cost & Margin Pressures

Volatile and unstable global markets have widespread implications for Home Improvement manufacturers and retailers. From unexpected fluctuations in raw material costs such as timber and glass, to increasing energy prices, unexpected obstacles are destabilising what were previously smoothly running supply chains, making it increasingly difficult for manufacturers and retailers to remain in the black.

With supplies of many raw materials becoming harder to secure, commodity price volatility may not be just a temporary 2021 phenomenon, and manufacturers are being forced to either absorb these significant additional costs, find new ways to mitigate the expenses, or ultimately pass on the price increases to retailers who are already very reluctant to see their margins reduced.

The Office for National Statistics (ONS) has projected a?rise?of 7-8% in?material prices?this year, with?increases?for certain?materials, such as?timber, expected to more than double. In May, the UK’s biggest builders merchant Travis Perkins warned customers of "considerable" cost increases to raw materials amid an industry-wide shortage. Read more here.

Changing Consumer Expectations

Historically, Home and Garden customers have expected basics like product quality, service and good pricing — but modern customers have far higher expectations, including proactive service, personalised interactions with retailers and brands and connected experiences across all the various channels that they choose to use.

In October 2020, Salesforce.com conducted a survey of 15,600 consumers and business buyers globally. The report ‘State of the Connected Customer’ provided an in-depth look at the factors influencing customers’ expectations, the emerging technologies influencing the future of customer experience and the reasons ‘brand trust’ is increasingly important and how companies can foster it.

They concluded that customers expect a lot from companies these days, and their standards are constantly being elevated as they interact with new and disruptive businesses who continue to raise the bar. The result is that businesses must look beyond their own industry to understand the benchmarks they are now being evaluated against.

Adopting New Technology

Technology continues to disrupt and rewrite operating models across every sector of the economy, but nowhere do we feel this more in our day-to-day lives than in the retail sector. From the increasing number of ways to purchase and engage with retailers, from changing behaviours and shopping preferences, they are all impacting on the shape of the retail landscape like never before.

UK Retail is at the forefront of the technology revolution, with the highest online purchase penetration of any Western Economy: 20% in Jan 2020, peaking at 36% during the pandemic and now settling down to 27% in May 2021 (source: ONS).

As?new?market entrants introduce more innovative and agile solutions, and competitors continue to put pressure on margins, businesses in our sector need?technology?to improve efficiencies, productivity and agility. But identifying the key areas where a company can?adopt technology?to empower their people, improve productivity and secure future success can be really challenging.

Increasing Supply Chain Efficiency

Effective supply chain management is critical during challenging times by coordinating procurement, suppliers, manufacturing facilities, retailers, distributors and customers as they move together through the production, sales and buying cycles. This requires pro-active management because it is affected by many factors outside of a companies control and when a business is acutely aware of these factors, it can manage them more effectively.

A well-managed supply chain can significantly reduce a company’s operating expenses, therefore driving up profits. This efficiency can be reflected in every aspect of the chain, from idea creation to the marketing of the final product.

Embedding Sustainability

Sustainability should be a philosophy for a business, not an endpoint. Companies should always be striving to become more efficient and less wasteful instead of assuming they’re already as sustainable as they want or need to be. There’s always more progress to be made and often this can lead to much needed cost savings. Product and transport packaging is a good example and with the Plastic Packaging Tax coming into force from April next year, this should be an area of focus for retailers and suppliers alike.

Help is at hand

Dealing with these multiple challenges is tough for any business at the best of times, but throw in the perfect storm of price increases, extended lead-times and cashflow issues and it’s increasingly difficult to know which way to turn.?

But help is at hand;?I’ve been talking with the team at 4C Associates?who are a team?of retail and supply chain practitioners/experts who?provide clients with levels of knowledge and insight they rarely have in-house. They work hand in hand with their clients to help them?operate?operate?more efficiently and compete more effectively by controlling costs, improving how they operate their processes and opening up opportunities for growth.?

This depth of practical experience combined with data driven technology means they know when to apply tried-and-tested solutions that deliver exceptional results for both retailers and manufacturers.

The team are available to tackle the challenges that each of these trends pose to the Home Improvement Industry, providing future-proof solutions and delivery expertise. Their work with retailers and brands to support them in their quest to stay relevant and be profitable while continuing to excite customers comes in many forms designed to suit each clients requirements:

Buying & Trading Response Plan

In the unprecedented circumstances generated by both Covid-19 and Brexit, 4C work closely with retail clients looking at both internal and external challenges related to Goods For Resale (GFR) buying to ensure business continuity while optimising cost bases using their proven Stop, Reduce, Defer and Transfer model.?

Mentoring/Supporting Buying Teams

4C have a very hands-on approach having supported large home improvement retailers in UK, Belgium and the Netherlands to deliver projects working and sitting alongside client buying teams supporting them to deliver outcomes. These included the strategic evaluation of supply bases, reductions in cost of goods sold, supplier rationalisation and improved cost control. Their ready-to-launch toolkits and training programmes accelerate delivery and provide practical, operational tools that any buyer can deploy.

Range/Space Optimisation

Being data driven is a key principle in any of 4C’s programmes. It sees them extract raw retail trading data before applying their learning algorithms to generate interactive insights that clearly and simply identify sales and margin trends and opportunities not always obvious to clients. Their clients, and sometimes client suppliers, use these insights to inform category and trading strategies, prioritise ranges and ensure shelf space delivers industry leading returns.

GNFR Savings

From fully managed Procurement Services to accelerated savings delivery and cost reduction programmes, 4C have delivered hard-hitting savings (often with their fees tied into the outcome), for businesses including a Dutch high street home store, a family owned UK hardware chain and Belgian-Dutch Home Improvement chain.

Risk Management within the end to end Supply Chain

There is a major risk that emergency measures will cause permanent damage to your business if not managed upfront – this could be as simple as managing cost price volatility, selecting appropriate freight terms, cashflow management or contract risk assessments. As an independent third party, 4C can design and implement effective plans, while carefully mitigating risks to ensure your business remains sustainable.

Sustainability & Plastic Packaging Reduction

With the increasing need to focus on Sustainability and with the introduction of new legislation such as the?Plastic Packaging Tax?from April 2022. 4C’s specialist packaging team work with clients on packaging optimisation and raw material traceability programmes.

Conclusion

It’s fair to say that businesses in our industry, whether retailers or manufacturers have never faced such head-winds in such a concentrated period of time. Not only are they having to contend with mounting cost pressures and availability issues, but at the same time, they are being bombarded with trends that are forcing them to revisit almost every aspect of their core business. It’s virtually impossible for the majority of businesses to have the people and skill-set required to manage their way successfully through the perfect storm and sometimes a helping hand from a team of experts who deliver focused and measurable results is essential when gearing up for long term success.

Contact the 4C team today:-

Pro Ganguly is a Senior Manager at 4C Associates and has over 20 years of experience working in the commercial divisions of leading UK retailers including Tesco, B&Q and Wickes. He has worked on buying transformation programs with multiple Home and DIY retailers and has a strong understanding of the challenges facing the sector and has worked with 4C’s client trading teams to identify and deliver cost savings and margin improvements across multiple GFR product categories. You can follow Pro on?Linkedin here?and contact him via DM on Linkedin or at?[email protected]

Andrew Davidson is a Director at 4C Associates, and Retail lead for the Home and DIY sector. He has worked with a number of UK and European retailers delivering cost reduction, margin improvement and capability enhancement programmes. You can follow Andrew on?LinkedIn?and contact him via DM or email at?[email protected]??

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Steve Collinge is an international speaker, influencer, retail commentator and is Managing Director of Insight Retail Group Ltd and executive editor of Insight DIY. You can follow Steve on?LinkedIn here?on?Twitter here?and contact him via?DM on LinkedIn.