Inflation in Canada has been at historic highs of late impacting consumer spending as the retail sector also deals with rising labour and material costs, staffing shortages, business sustainability and supply chain interruptions.
For retailers it is indeed a challenging time as they prepare for the upcoming holiday shopping season.
“And there’s been a shift in mentality for many retailers around the world. And that’s moving from scrappy over the last couple of years in terms of putting in initiatives based on the changing consumer behaviour to scale which is ‘wow, now I need to fully operationalize initiatives like buying online, picking up in store or allowing our associates to provide service whether they’re in the store or hanging out at home on their couch’,” he said.
“Retailers generally have had somewhat of a wakeup call in the impact these new operational realities have taken. And it’s really putting tremendous pressure on margin and as we’re talking to retailers about holiday that seems to be a common theme in terms of not letting margin be the Grinch that steals Christmas.
“Retailers have (implemented) a lot of new technologies. They’ve put in place some critical capabilities and now how do they make sure they can scale, drive automation, drive efficiency.”
Garf said the average selling price in the retail sector has been consistently rising over the last six or seven quarters. Consumer spending is essentially a zero sum game, he added.
“Consumers are now spending more on almost every item but they’re spending the same amount of money total so the math means they’re buying fewer products from less retailers,” said Garf. “So there’s been a shift to a large degree in loyalty and the definition of loyalty. Many consumers are looking for value, they’re looking for experience.
“Inflation is real. Last holiday, in particular, retailers, the extended supply chain, they were able to absorb the incremental costs of doing business, partly because they were able to preserve their margin by not having to discount. If you remember, there’s an inventory challenge which is there’s not enough of it because it’s stuck in containers at the ports and not being able to come into the domestic supply chain.
“Consumers got wind of that . . . And consumers got scared. So the retailers didn’t have to discount because they didn’t feel compelled to. This year there’s an inventory problem which is many retailers have excess inventory in categories that aren’t hot anymore whereas last year retailers were able to absorb the incremental costs of goods sold because they weren’t discounting. This year the retailers are passing that along to the consumers but also feeling the pain of margin erosion.”
Garf said people will look back at this time 10 years from now and see that the pandemic was a kick in the butt for retailers and brands to really force them to think about how consumers traverse the online and offline shopping journey.
“On average, according to our research, consumers traverse nine different touch points in any given shopping journey. Obviously with grocery, it’s likely a little less. When it’s a very concerted purchase like furniture it’s probably more but the point here is retailers, even coming up to the pandemic, while omnichannel became a common word in our industry nomenclature, it wasn’t put into practice in a way that incentives changed, processes changed, operations changed, and what the pandemic has shown particularly with the rise in digital is that it’s not a contest against digital versus physical but it’s a blending of the two that will really best serve the consumer,” said Garf.
“It’s a kick in the butt but in a good way. It’s not just about being scrappy anymore, but it’s really about scaling that omnichannel operation and looking at how do we automate, how do we create more efficiency, how do we break down the friction as the consumers traverse the various channels.
“I really feel like this is an interesting turning point for industry and I’m pretty darn jazzed up, and I’m pretty excited about what the future holds for those retailers that embrace it.”