Retailers are bracing for an impending recession with COVID lingering, sky-high oil prices, low unemployment and the rising cost of living.
To support trade through this challenging time, EDITED outlines five key strategies to weather the economic slowdown.
Get in touch to see a demo on how EDITED data can transform your processes to compete in the current state of the market.
To keep prices low, expand entry-level categories or, if possible, hold prices for essential items like underwear, socks, winter jackets and schoolwear. If increases are required, apply to recession-proof hero pieces to cushion margins.
Sustainable products are priced 4% higher than the market average, yet they continue to resonate with consumers, especially in the UK, where sell outs have experienced triple-digit growth YoY. Keep up the momentum by prioritizing resale, rental and repairs as the second-hand market is poised to accelerate even with the turbulent state of the economy.
Learning from past recessions, retailers can’t rely on slashing prices to generate sales. Treat VIP customers with offers and strategize markdowns for key events like Black Friday, taking a ‘spend more, save more’ approach to protect margins.
If retailers look after their consumers, they are more likely to emerge from recessions with more customers and fewer competitors. Focus on building brand loyalty as VIP customers yield the highest profit per order. Invest in customer experience and seamless online infrastructure to keep this cohort spending and explore experiential retail to delight new shoppers.
Minimize the costs of sampling and unsold merchandise by pulling back on the number of product drops. Pinpoint the right time to deliver new trends in MOQs to test the water, invest in seasonless products with year-round appeal and phase more expensive items to a later delivery date when consumer confidence bounces back.
Reconsider Pricing Architecture
Across both the US and UK, inflation has reached a 40-year high. The increase in the cost of raw materials coupled with higher freight charges have impacted fashion. The average price of apparel in the mass market each week in the UK has exceeded 2021 throughout 2022.
The US experienced peaks and troughs, while in the last week of May, prices rose 6% YoY. Consumer discretionary spending is expected to tighten with the increased cost of living, affecting everyday items such as groceries and gas.
Expand Entry-Level Categories
With average costs rising, retailers have expanded their lower-priced categories to appeal to consumer frugality. The number of men’s and women’s accessories in stock (where average prices don’t exceed £/$30) has risen 17% and 11%, respectively YoY. Hosiery has seen less than a 1% uptick in womenswear and dropped 2% YoY in menswear, highlighting an under-indexed lower-priced category to buy into. Third-party retailers can stock or promote value brands to capture spending.
To assist with the cost of living crisis, Weird Fish has held its prices for the spring/summer trading period. Primark has also pledged not to increase prices during this time. If retailers can’t action this strategy across all products, look to holding prices for everyday or essential items like winter jackets, schoolwear, underwear and socks, while raising the prices for best-selling bread-and-butter styles to pad out margins. Offer buy-now-pay-later services, and retailers with a brick-and-mortar presence can allocate higher-priced pieces to flagship stores with more foot traffic.
Adapt the Value Chain
The fluctuation of labor, fabric and energy costs means that marking up products is not enough to maintain healthy margins. Brands need to look for solutions that are both sustainable and cost-effective. Investigate domestic or near-shoring production to minimize emissions and avoid absorbing rising freight charges. If new fabrics are required that experience volatile price shifts like cotton or recycled nylon, buy in bulk to negotiate lower costs with suppliers.
Support The Circular Economy
A new survey by Stifel found that Americans’ commitment to shopping sustainably is being tested by the looming recession. While 81% believe it’s important for companies to act sustainably, only 64% are now willing to pay more for eco brands and practices, down from 67% last year. However, despite being 4% higher than average market prices, the majority SKU sell outs for new sustainable goods remain strong, up 49% in the US and 135% in the UK YoY. Retailers need to keep up this momentum and can’t afford to let their sustainability efforts slip.
Resale & Rental
A report by thredUP has predicted a 127% growth in the fashion resale market by 2026 – three times faster than the wider retail clothing sector. Brands of every caliber have recognized the lucrative opportunity and introduced partnerships with resale platforms that have the experience and infrastructure operating in this space. Can you convert returned items into a pre-loved business at a lower price point? Or incentivize customers for reselling by offering them a voucher or discount code to ensure future purchasing? The rental market is seeing a post-pandemic comeback. Rejina Pyo recently collaborated with Rotaro on a four-drop tailoring rental collection, helping to solve the issue of consumers wanting newness for events. Consider renting high-priced pieces and then reselling after a certain period to build repeat business with your customer.
Offering repairs or refreshes is a great way to create customer loyalty and increase a product’s longevity by diverting it from landfills. Retailers can also use this strategy to offer lower prices. Dr Martens recently partnered with Depop to collect used shoes that will be refurbished and then resold at 80% of the price of a new pair.
Seek Out Cheaper Fabric Alternatives
As cotton prices rise, retailers are rethinking their reliance on the go-to fiber by diversifying their assortments with other natural alternatives or blends to neutralize inflated prices. Consider bamboo, which isn’t as expensive to produce and uses less water than organic cotton, or deadstock materials to save costs.
Want more insights into pricing sustainable products? Log in to read How To Effectively Price Eco Fashion.
Avoid Panic Discounting
When the 2008 Global Financial Crisis and the 2020 pandemic hit, constant markdowns became the norm for retailers to encourage spending. Customers became trained to wait for promotions and retailers relied too heavily on aggressive discounting to move through inventory. While it’s tempting, history has taught us that excessive discounting can tarnish the perception of a brand and unnecessarily erode margins, making it paramount to hold off on steep markdowns during turbulent times and reset consumers’ expectations.
ASOS Email UK – Jun 18, 2020 & Fashion Nova Email US – Mar 19. 2022
Put a Clear Strategy in Place
Retailers need to have a game plan to entice consumers without devaluing their brand. Look to allocate reduced stock to an outlet site to allow new season styles to sell at full price without diluting brand image. Deeper discounts don’t always equal greater sell outs, so take a data-driven approach instead of slashing prices blindly. Consider marking down by categories or styles that are underperforming instead of running blanket offers and opt for ‘spend more, save more’ promotions as a way to clear through stock with less damage to margins.
Reward Loyal Customers
Use promotions to reward customers in your loyalty program or those who have supported your business throughout the last few chaotic years. Can you look into partnerships with supermarkets to encourage spending at your brand and help alleviate the stress of purchasing essentials like groceries?
Save Discounts for Key Events
Look to realign discounts with more traditional end-of-season sale events when the season is actually wrapping up to help clear stock or leverage special occasions. The Platinum Jubilee long weekend was optimal for retailers to offer deeper discounts – the week of the event saw a 5pp increase in the average reduction rate YoY and the proportion of assortments on sale grew by 9pp. Retailers can secure future purchases for sales like Prime Day and Black Friday by offering consumers discount codes or vouchers if they buy now to ensure spending at these major events.
Take a Customer-Centric Approach
Consumer behavior is constantly shifting. Retailers are struggling to entice new customers, which have lowered 3pp from 29% to 26% of online shoppers. Meanwhile, consumer loyalty is at a two-year high, with VIPs (customers that have purchased 11 times or more) rising 4.3% to 5% YoY. Over the past three months, VIPs have been the more profitable cohort, with an average profit per order increasing 29% YoY. To survive the recession, brands need to navigate the balance of maintaining loyal shoppers while attracting new ones to optimize revenue streams.
Make it Personal
Ensure you know what your customer wants from you. While innovation is critical, are all of your consumers interested in metaverse technology and NFTs right now or only a select demographic? Whether through surveys, Instagram polls, or focus groups, discover what can you do for your customer that other retailers can’t. Tailor your approach when communicating with different consumer profiles and engage with them on appropriate channels.
Keep Younger Generations in Mind
While the spending power of Gen Z has not yet come to fruition, they will still be impacted by the economic crisis. In the UK, 77% of 11 to 18-year-olds have had their parents or guardians discuss cutting back to save money, underscoring the need to hold prices for essential items or tap into the secondhand market. While US consumers cut back on buying clothing for themselves in the 2008 GFC, they still bought for their children and splurged at off-price retailers. Gear promotions and products towards the parents of Gen Alpha with technology and wearables and hyperphysical retail.
Invest in Customer Service & Seamless UX
Companies relying solely on reducing their workforce have only an 11% likelihood of success after a slowdown. So, while cutting staff may save costs in the interim, it can lead to long-term damage, with remaining team members burnt out and consumers frustrated by the experience. Instead, focus on how you can delight customers with experiential retail now brick-and-mortar shopping has returned. COS is currently trialing in store tech solutions like smart mirrors offering virtual try-ons and personalized styling recommendations, alongside fast checkout and upgraded delivery and returns.
Seamless experiences need to translate to ecomm too, especially with online returns spiking and costing £7bn annually in the UK alone. Consider partnering with tech platforms specializing in reverse logistics capabilities to reduce costs and emissions. The Greenlist empowers peer-to-peer returns, offering a plug-in for retailers’ Shopify network. Customers are alerted when a sold out item has been returned, which can be rerouted to a new buyer.
Quality Over Quantity
Despite consumer spending having been impacted by the cost of living crisis, mass market brands continue to churn out newness rapidly. The number of new product drops at US retailers rose 2% YoY, while the UK noted a 5% uptick. This year will be essential for brands to rewire their processes to reduce their environmental impact and maintain profits against the challenging economic backdrop.
Reduce Collection Sizes
Brands don’t need to produce countless goods to generate sales. Instead, take a surgical approach to better understand where to trim back and where to invest to help reduce sampling costs. To slow overconsumption and haul culture, be vigilant with trend cycles. Recognize the right time to drop new styles and, in MOQs, to reposition items as exclusive and avoid unnecessary markdowns and the cost of unsold merchandise.
With the trend cycle exploding and fast fashion retailers dropping new products at hyper-speed juxtaposing with the climate crisis, quality products, which are made to last, are needed now more than ever. Limit the number of disposable trend pieces produced compared to timeless, quality wardrobe staples that require minimal updates to silhouette, color or pattern and that can transcend generations, seasons and genders. For fall, ensure ranges consist of wide-leg trousers, puffer jackets, leather and soft-touch fabrics like silks and fuzzy textures, while embracing hybrid working with smart casual trench coats, denim and pick-and-mix suiting.
Take Cues from Luxury Brands
Historically, the luxury market is usually the first to bounce back from a recession as after a period of penny-pinching, consumers look to treat themselves to something special. Communicate the value of your higher-priced goods, drawing attention to fabric quality, sustainability and local or artisan craftsmanship. If possible, phase out upcoming deliveries of more expensive, non-seasonal products to arrive later in the year when consumer confidence has returned.
EDITED is here to support your business during this time of uncertainty. Our Retail Dashboard tracks key metrics in real-time highlighting how the industry is impacted. Don’t forget to sign up for our weekly Insider Briefing for more news and analysis.