React and Respond: Strategies for Retail Success Amid Ongoing Inflation

The inflation story is far from over; we’re just in the next chapter. As rates remain historically elevated, soaring prices continue to worry shoppers, forcing them to tighten household budgets and cut out non-essential goods.

And yet – retail sales still rise. The National Retail Federation forecasts retail sales to grow between 4% and 6% this year. Total annual sales are projected to reach an all-time high of about $5.2 trillion.

How can spending grow at the same time consumers are pulling back? The answer is that growth is extremely uneven. Some retailers are well positioned to capitalize on shoppers’ changing spending while others are failing to extract value from a hyper-dynamic marketplace.

What differentiates successful retailers is their ability to identify pockets of opportunity through deep insights into consumer behavior and preferences, an understanding often made possible with the help of advanced analytics. Here’s how some retailers are reacting to ongoing inflation with agility to keep sales flowing.

Personalizing the customer experience

One category where retail has flourished post-pandemic is beauty and personal care. This category has moved beyond makeup to now address concerns with wellness, and help customers with their skin, hair and other aspects of physical health.

Retailers such as Ulta Beauty and Sephora have seen sales skyrocket. Even some struggling department stores have identified beauty to be a bright spot. However, other companies in this category such as The Body Shop have reported declining sales.

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For Ulta Beauty, the secret is in personalization. The company has an in-store credit card program, email and SMS lists, as well as a robust marketing program – yielding troves of first-party data.?Using SAS Customer Intelligence 360 , Ulta Beauty marketers can access all of the company’s insights in one place and create personalized marketing campaigns that drive growing sales from members of its loyalty program, Ultamate Rewards.

Automating and personalizing its marketing efforts has helped Ulta Beauty achieve 95% sales penetration , meaning 95% of sales come from returning guests. Inflationary pressures have touched Ulta Beauty’s shoppers, yet their marketers knew enough about their spending habits to craft meaningful offers and promotions to help turn the tide in their favor.

Forecast with clarity

Understanding demand patterns has always been critical to a retailer’s ability to offer the right product mix at the right time. But since the pandemic, these patterns have not conformed to historical norms.

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Take seasonality, for example. Retailers used to know exactly when purchases would be made based on weather or holidays. But with product availability becoming a growing sore spot in recent years, shoppers may now buy a popular bathing suit style in winter if they fear it might not be there in the spring. Retailers that didn’t have swimsuits on hand would be out of luck.

It’s more important than ever to have demand forecasting technology that provides a detailed view into the short term. Retailers that possess these kinds of insights are at a competitive advantage. Not only can they have in-demand products on hand, but they can also reduce their inventories of unwanted merchandise. What’s more, if demand for bathing suits, for example, is looking much higher in Texas than Boston, then the retailer may have the opportunity to flow inventory where this demand is more stable or predictable.

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Optimizing prices

Another growth area in retail has been off-price stores, including T.J. Maxx, Burlington and Ross. These retailers benefit from two ongoing trends: other stores’ need to purge excess merchandise, and shoppers’ drive to get the best deals possible.

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Of course, not all retailers can emulate this business model. But, with the use of price optimization analytics, businesses have greater certainty around what to mark down and when. A granular understanding of shoppers’ buying patterns can help to determine price elasticity for certain products based on location or other factors.

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Taking the Texas/Boston example, perhaps a line of clothing is selling well in one region and not the other, meriting a discount where demand is soft. Lowering prices may take a bite out of margins, but it could be a better decision than watching a shopper flee to an off-price competitor. Price optimization analytics can help determine the right price point for retaining customers at maximized profitability.

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Detecting stockouts early

The surest way of losing a retail sale is not having a product in stock. Though product availability pressures have eased compared with the past few years, this challenge is always present for certain categories, like apparel. And this often comes down to an otherwise mundane product characteristic: size.

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In reality, clothing sizes present a lot of complexity. It’s not only that a range of sizes across apparel lines means hundreds of SKUs to manage. It’s also that for apparel, demand is often non-transferable. In other words, if a shopper goes into a store looking for a size small, she’s not going to buy a size large if that’s all the boutique has. With size optimization analytics, retailers can forecast the optimal inventory levels for each size, reducing the chances of stockouts.

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On the flip side, for goods where demand is transferable– think a different brand of winter coat – having a recommendation engine can be indispensable. Providing shoppers with product alternatives, through an app or in-store kiosk, can lead to sales even when some products may not be available.

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Resilience for the long run

There’s no denying that a confluence of extraordinary factors – pandemic-driven supply shortages coupled with historic inflation – have made this a challenging time for retailers. It may be tempting to think that once time has passed, the old ways of doing business can return.

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And while current challenges will fade, there will certainly be new, unexpected ones on the horizon. Think of a marketplace like Temu, which features low prices that seem to verge on the unbelievable. Few people saw this coming. But the question now is: How will traditional retailers compete?

Namely, by embracing change and using the skills and techniques learned over the past few years of uncertainty. Reacting to the changing marketplace of the future will require shorter demand planning cycles, better forecasting techniques, and price optimization. It’s also going to mandate migration of marketing and analytics software to the cloud (a rarity just a few years ago) because of the cloud’s proven efficiency and security advantages. And it’s going to take retooling or replacing 20-year-old fulfillment systems because shoppers now demand products when and how they want them.

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The cycle of reacting and responding never ends. And that’s why retailers must always remain agile to prepare for the next chapter.

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