Retailers are faced with the threat of enduring inflation, but they can overcome this challenge by implementing strategies that reduce costs, keep customers and propel profitable growth. The onset of inflation was a bang on the retail industry when industry personnel revealed the effects on their operations that rising costs had on their business.

As increasing numbers of people were vaccinated against COVID-19, retail stores experienced a significant increase in sales. However, the booming demand for goods quickly overcame supply chains, and supply-demand disruptions were paired with the pressures of commodity-driven costs to increase prices. Moreover, prices for commodities increased again when Russia attacked Ukraine, which exacerbated the cost hikes in indirect and direct ways for retailers and saw inflation even higher.

Planners have begun to anticipate around a two per cent inflation rate. However, it is becoming more apparent that the inflation could be higher than that until next year. As a result, central banks around the world are increasing interest rates to curb demand and reduce the possibility of future inflation. However, these efforts will take time before they yield results.

Retailers across the industry must be aware of the current realities of record inflation and develop strategies to retain customers and sustain growth over the long term.

Everybody is getting squeezed

Since the economy started to re-open in the past few months, we've witnessed both bottom and top lines being strained by the slowing growth of sales for some shrinking margins, a difficult combination for retailers. As we look ahead, the sector is likely to be facing the challenge of a tougher expansion, even as it faces increasing prices. Retailers will have to contend with rising costs of their merchandise and price increases for everything from manufacturing equipment to freight and fuel prices to wages. Although inflation hasn't significantly affected nominal consumption, we see signs of a pullback. At the beginning of 2022, with an unprecedented inflation rate, consumers continue to spend their money. The rise in consumer spending wasn't afraid to access their savings after the pandemic restrictions were reduced. Not only have savers been making purchases, but the usage of credit cards and limits also increased.

Although overall spending was robust, spending by consumers has decreased in certain areas that had previously been expanding, leading them to slow. For example, most of the growth in spending on groceries is caused by inflation, not a rise in consumption.

The shifts in consumer sentiment are already manifesting in consumer behavior, and increasing numbers report they changed brands as well as retailers by 2022, more than ever since the pandemic started, obtained by consumer tracking. Most of them also say they'll continue to switch in the future, with price being the primary factor on the list of reasons consumers are looking for value.

An opportunity for growth

Retailers can transform these opportunities into challenges if they make bold and deliberate choices. Businesses with extraordinary performance in economic downturns are more likely to outperform their competitors throughout the following decades.

Although there isn't a silver bullet, retailers can choose to take various transformative steps to combat inflation and create an improvement in performance for the coming years. Companies that adopt a comprehensive approach will be able to stop inflation and keep their profits.

The conditions for the retailer are likely to be difficult for a time. However, this also offers an opportunity for those who act swiftly and decisively to devise a solution. Most brands are equipped to overcome the challenges and emerge as winners, engaging with a retail agency. Knowing that inflation is motivated to work holistically across the entire organization along the value chain. The future is in the hands of those who can rethink their capabilities to improve their resilience as an organization.