A recession is defined as two back-to-back quarters (six months) of declining GDP. That means, as things currently stand, we’re not in one.
However, many economists agree that it’s a matter of time until we are. Others argue that sky-high inflation makes it feel like we’re already in an (albeit unofficial) recession – and that declining gross domestic product (GDP) shouldn’t be the only marker to watch out for.
While we have not yet technically entered a recession, indicators do point to such an economic downturn within the next year. Inflation and high prices on everything from fuel to food are already impacting consumer spending, with sales volumes decreasing and companies from WalMart to Coca Cola reporting falling profits. One thing is certain: a major downturn is on its way – and retailers must get ready.
Ready, set, recession
In the UK, the Bank of England expects the economy to contract by one per cent between October and December and GDP is forecast to remain below 2022 levels throughout the whole of 2023.
In the US, a survey of 49 U.S. macroeconomists revealed that more than two-thirds believe a recession will hit in 2023.
For lots of retailers on both sides of the Atlantic, the struggles of the last so-called Great Recession are still fresh in mind. Officially, it lasted from December 2007 through June 2009, but its effects were felt for months, even years, afterwards. Many retailers made it through by the skin of their teeth; others buckled under the pressure and filed for bankruptcy – and a savvy few (9%) thrived, posting better financial results than they did prior to the downturn. Do you want to be part of that exclusive club?
Based on the behavior of the most successful retailers during the last recession, we’ve worked out what merchants should do now to give themselves the upper hand if (or when) recession hits.
1. Prioritize customer service
Outstanding customer service is always a huge factor in the success of online retail brands – but especially so during a downturn. Even without an official recession, the rising cost of living means consumers right now feel worried, uncertain and more concerned about how they spend their hard-earned cash.
Retailers must maintain or, ideally, improve their customer service for the turbulent times ahead – it’s the best way to win the trust of customers going forwards (and to keep them coming back). Customer service must be smooth, prompt and error-free across every touchpoint and there should be clear and appropriate communication at every step of the buying journey.
Automation is the key
The smartest and easiest way to level-up the customer experience you offer is by automating your operations. Automation doesn’t have to be complicated, either – it’s possible to create simple, bespoke rules to suit your need, without needing to do any coding.
Automating key workflows in your back office can help boost customer service by:
- Eliminating human error. Manually processing orders means mistakes are inevitable. And while customers never want to experience errors, that’s especially true in the current climate. Automating order processing dramatically reduces the risk of errors and ensures speedy consistency. The average Brightpearl customer reduces errors by 65% using our Automation Engine.
- Speeding up communication. Everything from processing invoices to sending order updates can be automated. Customer enquiry tickets can be automatically flagged and filtered. When issues do crop up, appropriate customer comms can be automatically sent. This saves tons of time and eliminates stress.
- Reducing pressure on staff. Brightpearl customers typically cut labor costs in half by using automation. If your workforce is already lean, or made leaner by a recession, automating manual tasks means you can deliver a more consistent level of service while enabling your people to focus on more critical work.
Case study: Snow dazzled by automation
Global oral cosmetics brand Snow swears by the power of automation to transform customer service.
Brightpearl’s Automation Engine dramatically sped up the brand’s workflows so that even during peak season, the brand could maintain its same-day dispatch promise. It’s also enabled the successful brand to cut customer ticket wait times from 14 days to just 12 minutes.
Trevor Martin, Snow’s Vice President of Operations, says: “Brightpearl’s Automation Engine transformed how we manage peak – it was incredible how it sped up our time to ship. Without automation, I would have had to double our warehouse and operations staff – it would have been a nightmare. Brightpearl saved us tens of hires.”
2. Accurately forecast demand
Did you know 80% of the average retailers’ cash is held in inventory? During a downturn, retailers need access to all the cash they can get.
The ongoing supply chain crisis resulted in many retailers running out of stock when demand was at its peak. In fact, Brightpearl research revealed nearly half (46%) of shops and e-commerce brands experienced stockouts in 2021-22 that resulted in a loss of sales. Certain sectors were particularly badly affected; 92% of luxury goods brands lost out.
A fear of running out of stock led to many retailers hoarding ‘safety stock’. However, now that demand has died down, the mountains of stock are proving hard to shift in some cases.
With a recession looming, now is the perfect time for retailers to take a smarter approach to buying stock – it’s especially crucial that the exact right items are bought at the exact right moment, which is exactly what tools like Inventory Planner Premium are designed to ensure.
Being able to accurately predict future demand for products is the key to avoiding stock outs, minimizing the impact of delays and stabilizing your cash flow in these uncertain times.
Why use demand forecasting?
- Demand forecasting software, like Brightpearl’s Inventory Planner Premium, enables retailers to regain control on supply by making intelligent and accurate suggestions on when to order products, how much to order and how to make stocks last between shipments.
- By connecting sales data, supplier timescales and factors such as seasonality and promotions to Inventory Planner Premium, merchants can strike the delicate balance of avoiding running out of the most profitable items and avoiding having warehouses packed with inventory that can’t be shifted.
- Armed with accurate inventory forecasts, retailers can focus, if necessary, on replenishing the most successful items to keep cash flow steady and to avoid upsetting customers during an already stressful time.
Next-level demand planning
Here’s what Brightpearl customers say about the power of forecasting demand…
- Being able to accurately forecast our stock needs using Brightpearl’s Inventory Planner Premium has been a huge help for us – we no longer have to spend hours on spreadsheets!” – Alvaro Gomis, Co-founder, Jimmy Lion
- “Inventory Planner Premium has been phenomenal for us. It factors in seasonality so that we can look at the data and instantly say ‘ok, we need to order 100,000 of that item, not 10,000 – otherwise we’re going to run out in two months” – Trevor Martin, Vice President Operations, Snow
- “The data Brightpearl’s Inventory Planner Premium has generated for us has been everything, absolutely everything. We couldn’t have managed the pandemic and achieved such growth without it.” – James Ewens, Head of E-Commerce, FurnitureBox
3. Optimize marketing spend
When money is tight, brands can’t afford to risk wasting cash on marketing that doesn’t get results.
However, brands also can’t afford to stop using marketing to bring in new customers and drive sales. It’s a downturn dilemma that demands a careful approach.
To optimize your market spend during a recession, you need to make data-driven decisions. That means having access to real-time metrics you can trust to help you spend smarter.
It’s essential to ensure your UTM parameters are consistent across all your organic and paid marketing – including emails, social media posts and affiliate content. Likewise, ensure your conversion tracking and pixels have been recently updated and are firing correctly across all pages of your website. This will ensure the data you use to base your marketing decisions on is reliable.
Know your ROAS from your elbow
During a downturn, it’s important to focus not only on your CPA (cost per acquisition), but to pay extra attention to your ROAS (return on ad spend). Campaigns with a high CPA aren’t necessarily ‘bad’, even when budgets are tight, if they produce a decent ROAS.
Analyzing your marketing costs per channel is essential too. Consumers are continuing to shop via non-traditional platforms which makes experimenting with marketing inevitable, However, keeping an eye on this data can ensure you get bang for your buck.
By paying attention to your data, you can make the money you spend on marketing go further. Brightpearl Analytics gives you full insights on your advertising campaigns across platforms like Facebook, Instagram and Google, as well as email – so you can clearly see which products are producing the best ROI in the fastest time. It’s a proven tool that will help you spend your marketing budget wisely so you continue capturing new customers, even during turbulent times.
4. Add new sales channels
If you want to survive and even thrive during this recessionary environment, stagnating isn’t an option. The modern consumer journey isn’t a simple or linear one. In fact, the average shopper researches and browses across an average of three touchpoints, online and offline, before finally hitting ‘buy’.
Recession or not, that trend isn’t going to change – and tapping into it can give retailers an opportunity to get ahead of their competition; in a recent Brightpearl study, merchants selling on multiple channels reported a higher level of growth – 33%, compared to only 8% growth when selling on a single channel. Channels like TikTok should not be ignored – TikTok is predicted to grow its user base by 18.3% this year, and is set to have more Gen Z users than Instagram and Facebook combined. That opens up an entirely new audience for merchants with TikTok Shop, enballing merchants and brands to showcase and sell products for the TikTok community to discover and purchase directly.
Why add more channels now?
- It boosts brand awareness. Multichannel selling helps you to be present at various parts of a single buyer’s journey, making it more streamlined which improves the experience shoppers have with your brand and increases the likelihood of it resulting in a sale.
- It brings in new customers. Multichannel selling makes your products accessible to various potential customers across a variety of sales touchpoints, from your own e-commerce store, to Amazon, Etsy or even social media sites like Pinterest.
- It increases revenue. When your products are available for purchase on more than one platform, you widen your reach, sell more products and ultimately increase your revenue.
More channels ≠ more complexity
Despite the clear opportunity that multichannel selling presents, just 14% of retailers in the UK, and a quarter of US firms, planned to add new channels in 2022.
For many retailers, the increased admin and logistics of managing inventory across additional channels is a major roadblock – at least if they use a notoriously clunky traditional ERP or OMS.
However, with the right tech stack in place, multichannel selling can be simple and stress-free. As a cutting-edge Retail Operating System (ROS), Brightpearl can connect you quickly and easily to all of the major e-commerce providers and marketplaces and allow you to manage your inventory, track your orders, and report on performance — all in one place.
5. Know when to liquidate
During the downturn, retailers can ensure they buy the right stock at the right time with market-leading demand forecasting tools like Brightpearl’s Inventory Planner Premium. However, some retailers will still occasionally need to discount or promote poor-performing items. It’s essential this is done at the right time to minimize losses and cash in on trends.
To understand which products should be eliminated, de-focussed or discounted, a BCG matrix is useful. A BCG matrix is a model used to analyze products as part of longer-term strategic planning. It provides a framework for evaluating the success of each product so you can see which items you should invest more money into and which you should eliminate altogether. It can also help you identify opportunities to introduce brand new products.
Powerful inventory planning software provides similar results as the BCG matrix, but using data like historic performance of product ranges across channels and predicted sales, to allow for more informed insights and decision making.
With a huge range of customizable settings, such as the option to separate your wholesale and DTC sales or focus on specific warehouses, Inventory Planner can be set up to suit your business. It offers the best way to free up cash to reinvest on trending or best-selling items that are producing a better return on investment.
In this blog, we’ve shared five ways you can boost your recessionary resilience and lay the foundation for competitive advantage during – and beyond – the downturn. By following these steps, you can prepare now in order to prosper later:
- Prioritize customer service
Use automation to speed up your service, minimize errors and reduce pressure on staff.
- Accurately forecast demand
Get accurate inventory forecasts, so you can focus on replenishing the most successful items to keep cash flow steady.
- Optimize your marketing spend
Pay attention to your data so you can make the money you spend on marketing go further.
- Add new sales channels
Add new channels the simple way to boost brand awareness, bring in new customers and ultimately increase revenue.
- Know when to liquidate
Use powerful inventory planning software to discount or promote poor-performing items at the right time to minimize losses and cash in on trends.
Sign you for your free demo to see how Brightpearl’s leading Retail Operating System can help you during the downturn – and beyond.