Find out what the 5 key strategies to adopt during the upcoming global recession.
According to SearchNode, 41% of e-Commerce businesses have done nothing to prepare for an economic crisis, while 17% don’t know whether their companies had made preparations.
As more countries trickle into the global recession, it is paramount to have an action plan in place and be transparent with your team. Read on for five key insights from 2008’s MVPs to help shape your strategy and harness the power of data to trade during a challenging new retail era.
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Nail future assortments
The wrong investment or deadstock can severely impact a retailer or brand’s ability to trade during a global recession and lead to unnecessary markdowns.
Optimizing your assortment is more important than ever. To survive the recession, retailers need to play to their strengths to keep consumers invested. Analyzing wider market trends helps understand where there is room for growth and where to pull back so you can make adjustments accordingly. For example, comparing products stocked over the past month vs. what sold out reveals tops as the best-performing category in the US and China. It makes up 40% of sell outs compared to 31% of stocked items in the US and 32% of sell outs vs. 28% of stocked categories in China.
On the flip side, both regions over-indexed in dress investments, which only equaled 5% of sell outs vs. 8% of products in stock for the US and 3% of sell outs vs. 7% of available items in China. This suggests retailers operating in these regions could have made tweaks to their assortments. For example, increasing their investment in tops to cater to dressing from the waist up for working and socializing over video and pulling back on dress options or phasing styles for when lockdown measures fully lift.
Monitoring market shifts is important to understanding where there is demand and saturation within product assortments, helping you make smarter investments that will pay off in the future.
See now, buy now: When lockdowns lift, can goods be delivered closer to season to maximize selling time and avoid premature discounts?
Consider seasonless options: With the disruption of the retail calendar by COVID-19, traditional seasons are becoming more blurred. Brands such as Uniqlo with a strong basics assortment are well-placed to trade as they have a broad offering of evergreen styles.
Play to your strengths: Avoid trying to be everything to everyone and focus on what your customer values. Update hero products with new fabrics or colorways to minimize the risk and cut out the fitting process.
Look to post-recession trends: After the last GFC, excess and branding gave way to minimalism and streetwear saw a rebirth. Ensure trends that have performed well during lockdown, such as loungewear, are updated to remain relevant with the shift in consumer lifestyles.
Reconsider pricing architecture
High levels of unemployment post-COVID will see people spending less money on discretionary items, making it tempting to slash prices. Since April, the average price of product selling out across the US and UK has dropped with customers tightening their purse-strings as the virus took hold.
It will be essential to have a strong offering at an accessible price point across all categories now and in the future with consumer confidence still low. However, your overall pricing strategy may need an overhaul. Tiffany’s cut the average price of its high-end fashion jewelry by 25% in 2008-09 but increased engagement jewelry by 10%. This shift saw net revenues rise and margins stabilize.
Can you increase the prices on your bread-and-butter styles that are more ‘recession-proof’ to cushion the margin for lower-price, higher-risk investments?
Though people will have less disposable income, they won’t be looking to drop their standard of living or forgo their favorite products. Could diffusion lines or brand partnerships come into play?
There is hope that ‘revenge spending’ will help boost the economy. When events restart and customers are looking to treat themselves for an occasion, are there products phased for later that could warrant a higher price point?
Are you offering buy-now-pay-later services?
In-store, can higher-priced stock be allocated to your flagship locations that receive higher foot traffic?
Ensure your marketing effectively communicates the value of your higher-priced goods. Draw attention to fabric quality as well as local or artisan goods.
Break the discounting addiction
When the 2008 GFC hit, year-round markdowns became the norm for retailers to encourage spending. Customers are now trained to wait for promotions and retailers rely more on aggressive discounting to move through inventory.
Avoid panic discounting and put a clear, strong strategy in place to entice consumers without devaluing your brand. Consider if trend-driven items can be reworked into future assortments or evergreen and essential products can be phased for later delivery.
Hold off on deep reductions now and retrain your customers not to expect discounts all year round.
Look to realign discounts with a more traditional end-of-season sale event in July/August and December/January when the season is actually ending.
Deeper discounts don’t always equal greater sell outs. Avoid sacrificing your margins with too-aggressive markdowns.
Look to allocating reduced stock to an outlet site to allow new season styles to sell at full price without diluting brand image.
Use promotions to reward customers in your loyalty programs or those who have supported your business during this time.
Follow suit from luxury brands running ‘archival sales’ to reduce collections from past seasons and private sales to maintain exclusivity.
Markdown by categories instead of running blanket offers and consider ‘spend more, save more’ promotions as a way to clear through stock with less damage to margins.
Invest in experience & innovation
Retailers are currently operating with less employees as COVID-19 forced companies worldwide to cut staff as stores and warehouses shuttered. Alongside new social distancing measures, creating an unfamiliar shopping environment for customers.
Businesses that make drastic cuts don’t necessarily survive recessions. According to Harvard Business Review, companies that just rely on trimming its workforce have only an 11% likelihood of achieving breakaway performance after a slowdown. Customer service and experience in brick-and-mortar stores and e-Commerce sites will be paramount to help shoppers navigate the new era of retail, so use this time wisely to invest in creative solutions with long-term payoffs.
Product innovation will continue to flourish even in a recession. Amazon experienced a surge in profits in 2009 mid-GFC, propelled by the success of the Kindle.
Brands that can offer a more seamless return process will have a better chance of retaining customers in the future. With online returns already a costly pain point, partnering with tech platforms specializing in reverse logistics capabilities is an option to save time and money.
Think about how you can delight customers in store again, going above making them feels comfortable shopping in modified environments.
For your online business, focus on creating a seamless user experience to keep sales momentum for customers not yet venturing out.
Fit is one of the most important factors for purchasing. With changing rooms off-limits, have you explored virtual alternatives such as online consultations or 3D fittings?
Build brand loyalty
With so many players in the market, brand loyalty was already hard to come by pre-coronavirus. Now, brands are aggressively competing for consumers’ attention to help them stay afloat. How do you cut through the noise and maintain the loyalty of your current customers as well as attract new ones?
A personalized approach is crucial. What can you do for your customer that other retailers can’t? Ensure you know what your customer wants from you. In 2008, Starbucks launched the ‘My Starbucks Idea’ online portal, where customers could create a profile as well as feedback ideas of what they wanted from the product and experience. Implementing these ideas built brand loyalty for Starbucks and repositioned it as a community-centric business – helping it survive the last recession.
Be transparent as there are a lot of changes to traditional retail operations. Be sure your customer is kept in the loop.
Social good is more than a trend and 2020 is an essential year for brands to authentically connect with their customers. Retailers that support the causes they care about will be a deciding factor for consumers as to where they place their brand loyalty.
Again, communicate your value and uphold it. Heritage luxury brands withstood the 2008 GFC with shoppers investing in well-known and trusted brands.
Tailor your approach when communicating with different consumer profiles and engage with them on appropriate channels.