Every industry has its own set of challenges. The retail sector is no exception. Ever since the COVID-19 pandemic started, the retail sector has experienced significant shifts that have altered how things work. These shifts have been so significant that some retail companies have had to file for bankruptcy, while others have closed their businesses.
But don’t despair! Amid the shifts, some retailers have achieved success by adapting quickly to the rapid challenges. As a retailer, you need to know the challenges facing your industry in order to make the necessary changes.
Below are the top five retailer challenges you should know about.
1. Increased Cost of Goods
There has been a rapid escalation in the cost of goods, with inflation reaching a 40-year high of 9.1% as of June 2022. This is bad news for retailers.
The rise in production and transportation costs forces retailers to pass some of the costs to consumers through increased retail prices. As prices increase, consumer wages lose value and the demand for goods drops.
Consumers are more focused on preserving their existing cash and covering only the necessary expenses. They also switch to cheaper products, embrace discounts, shop more often for less, and postpone spending on large items.
These changes may lead to unsold stock, a fall in retail sales volume, and inventory forecasting issues for retailers.
In addition, the increased cost of goods results in higher operating costs for retailers. Delivering products to consumers becomes more expensive for online retailers, forcing them to raise delivery charges. This hurts their online sales.
Consumers also change the location and types of retail shops that they visit. When fuel costs rise, many consumers avoid costly travel and choose to shop in their local stores. If you have a car-dependent large store, you’ll see a decline in foot traffic and sales volumes.
2. Supply Disruptions
Retailers like to place orders early to increase their selling windows. Unfortunately, the pandemic, combined with other factors such as shifts in demand, labor shortages, and geopolitical uncertainties, have disrupted the normal flow of goods both nationally and internationally.
The supply chain crisis has had many effects, including:
- Longer shipping times
- Delays with producing goods
- Lack of space on ships departing the country of manufacture
- Shipping container shortages leading to a rise in shipping prices
These supply challenges have not only eaten heavily into retailer margins but have also led to massive inventory delays. Many retailers have had to wait for weeks or months to receive their inventory, leading to shorter selling windows. Eventually, this results in a surplus of outdated or unused inventory and decreased revenues.
3. Digital Disruption
The arrival of e-commerce has made the job of running a shop a bit harder. Retailers have to keep up with the high demands and fast-changing behaviors of modern consumers to avoid falling behind other players in the market. For example, consumers today can quickly find the lowest prices of a product online, order it, and have it delivered to them. A retailer that relies solely on a brick-and-mortar store risks missing out on a lot of customers.
However, integrating digital tools in both online and in-store isn’t easy. When several digital channels are integrated, it becomes difficult to determine the value each contributes to purchasing. As a result, many retailers struggle to optimize the customer journey.
Here are other struggles that retailers face in their efforts to adapt to this technological age:
- Dealing with enlightened consumers: Consumers today are knowledgeable and won’t hesitate to use various tricks to get what they want. A good example here is consumers who intentionally abandon their carts because they know the retailer will retarget them with a discount or offer to close the sale. Retailers have to accept the fact that they are dealing with smart consumers.
- High costs: Retailers have to replace their old systems with modern omnichannel systems, which may be expensive. Setting up these systems can also be complicated and time consuming.
- Changing business culture: Traditionally, retailers have used marketing strategies primarily focused on their products. But with consumers today being highly informed and the rise of technology, modern strategies today are customer-centric.
4. Employee Turnover
For a long time, the retail sector has dealt with the issue of high turnover rates. But since the pandemic began in 2020, this has become an even bigger concern.
One factor that has significantly contributed to employee challenges is less purchasing power brought by rising inflation. Due to the increased cost of goods, most employees in the retail sector have realized that their wages are not enough to make a decent living. As a result, many are quitting their jobs to pursue better opportunities.
Even those who are not quitting are asking their employers for salary or wage increases. This leaves most employers in a tight spot. Either pay the workers more and reduce their margins or lose their most valued staff. Neither is a good option for retailers.
In most cases, when a retail company loses its employees, it has to cater for the cost of hiring and training new workers. Business operations are also disrupted before the new hires can start working.
4. Managing Internal Communication
As the retail market gets more complex, retail owners, especially those that run multiple stores, often struggle to manage internal communication. Typically, it can feel like each store or division is for itself.
Sometimes, poor internal communication causes people to receive varying degrees of information or completely miss out. For example, your store may be launching a new product, but some of your employees don’t understand how the product works or how to sell it. This inevitably leads to an uninformed workforce that is operating at different standards, ultimately causing unpleasant shopping experiences for your customers.
Overall, good internal communication relies heavily on the systems that a company is using. A medium-to-large retail company that relies on dated communication channels such as Outlook or Yahoo Mail is bound to experience some communication challenges. Major retail companies today utilize enterprise resource planning systems to manage internal communication across various departments or stores.
From increased cost of goods to high employee turnover, the retail sector faces many retailer challenges today. The good news is that you can overcome these challenges by being proactive.
The first step is understanding these challenges and then coming up with systems to guide your business in the future. Also, remain updated on what is happening in the industry by following valuable publications, such as HQ Magazine.