Inflation is a persistent issue that is impacting consumers and businesses alike.
With the uncertain economic climate, retailers must adapt their strategies to survive and thrive. To do so, they must understand the micro trends that are emerging as a result of this inflationary environment. In this article, we will explore three strategies that retailers can employ to ride out economic instability and thrive as a result.
#1 Shift from discretionary spending to necessary spending
One of the primary trends that retailers are seeing in this inflationary environment is a shift from consumers’ discretionary spending to necessary spending. As prices continue to rise, consumers are becoming more cautious about their spending habits, focusing on buying essential items like groceries, household goods, and other necessities rather than indulging in luxuries like vacations and dining out.
The NPD Group reported that in 2022, unit sales of U.S. discretionary general merchandise in 2022 were 7% lower, and sales revenue fell 2% vs. 2021. And Skift reports that 34% of Americans plan to cut down on their travel spend this year due to high prices.
Retailers must modify their strategies to cater to this shift in consumer behavior. Realizing that price is still incredibly important to consumers, retailers must consider the impact of perceived value on the prices that consumers are willing to pay. This means not only offering high quality products, but by boosting consumers’ confidence in a brand or store by delivering excellent customer service and other value-adds.
Target, for example, recently beat analysts’ expectations by not only focusing on low prices, but other time-saving, convenience-enhancing perceived benefits too, such as in-store and drive-up pickup.
Retailers can also adjust pricing strategies to make essential items more affordable for their customers. This can be done by strategically offering discounts, promotions, and coupons on items in the “necessary” category.
#2 More consumers shopping at discount stores and warehouses
Another trend is that more consumers are shopping at discount stores. As prices continue to rise, consumers are looking for ways to save money, and “off-price” stores are meeting consumers’ need to make their money go further. TJ Maxx, Burlington, and Ross are planning to open a combined total of more than 300 additional stores this year.
These stores offer quality products at lower prices than their competitors, making them an attractive option for consumers looking to stretch their dollars further.
Retailers that want to remain competitive in this environment must embrace the discount model. Depending on their target customer, they can consider doing this by offering more value-priced products, providing discounts and promotions, and focusing on efficiency in their operations to keep costs down. Retailers can also create their own discount brands or partner with existing discount stores to offer exclusive deals to their customers.
For retailers that don’t want to rely exclusively on discounting or lower prices, especially higher-end brands, they can differentiate their products from those sold at discount stores by offering unique, high-quality products that are not typically found in those stores.
They can also look to improve the customer experience both in-store and online. This can be accomplished in-store by delivering personalized customer service i (think Nordstrom), providing a comfortable shopping experience, and creating a visually appealing store layout.
Brands are increasingly investing in delivering highly personalized one-to-one shopping experiences online, as well as increasing convenience with free shipping and returns, curbside pickup, and same-day delivery.
#3 Loyalty rewards and cash back for shopping
Lastly, retailers are likely to see an increase in customers looking to get more value for their money through tactics like loyalty rewards and cash back for shopping. Although loyalty programs can take many different forms, the main goal of these programs is to get customers to purchase again (or simply remain a customer) by providing a discount or other incentive. Especially in times of inflation and economic instability, loyalty programs can be a useful strategy to keep customers content, making return visits, and spending money with a brand.
McKinsey reported that 35% of loyalty program members are more likely to choose the brand where they’re a member over others. But as inflation exerts downward pressure on the value of rewards or points, retailers must create and promote loyalty programs that offer real value to customers.
Michelle Wood is VP of merchant development, Wildfire Systems