Recessions are hard on retailers. A high employment rate, drop in sales volumes, and GDP shrinkage certainly doesn’t sound like the ingredients for successful retailing. However, there are reasons to be optimistic about a recession if it were to come.
First, it will not be the same as the previous recession in 2008 or 2020, when a financial crisis and a pandemic spread into a global economic shock on both demand and supply sides. What is building up to a potential recession this time is the monetary policy.
The US Federal Reserve and many central banks around the world have been raising interest rates to fight inflation induced by energy supply shortages and global food insecurity. Main Street consumer demands remain strong, and people’s personal finances are in good shape as governments around the world pumped rounds of stimulus spending into their society during the pandemic.
Besides, considering the baby boomer generation is retiring, the labour market in some major economies is tight at a historical level. “We not only have low unemployment, but we also have a talent shortage,” says Ken Dychtwald, US researcher on ageing and financial habits.
Therefore, with high consumer savings and reasonably good household balance sheets, retailers should not be too worried about a recession over the next year. Instead, it’s the best time to evaluate and future-proof your retailing strategy.
Retention over acquisition
Inflation has taken a bite out of the spending power of the lower-income group. As things are gloomier, it’s normal to observe a weaker consumer demand. Hence, instead of acquiring new customers, retailers should turn efforts to keep the right customer happy for as long as possible.
Also Read: How to survive a recession and thrive afterward
A study has shown that retention is more cost-efficient than acquisition, five to 25 times less expensive. Bain and Company suggested that repeat customers will likely spend more over time, refer products to their friends and pay for upgraded services.
Reward programmes are no secret in the retail world for retaining customers. But do rewards really create loyalty? To answer this question, retailers have to track and record the results, including new membership sign-ups (awareness), immediate sales growth (campaign-based actions), and long-term measurable profit increment (individual loyalty).
Small leaks in the sales funnel have a significant sales impact. If people are not reading your reward email, ask yourself this:
- Are you delivering the message through the right channel?
- Is the reward programme too generalised?
- How to better segment customers and send targeted rewards?
- Which part of the pipeline did your prospects get stuck in, and why is it? (The list could be long, like payment failure, poor mobile design, and slow loading website.)
For example, Asia’s leading casual wear brand, bossini, has recently improved the distribution management of its membership reward programme. The brand used to update its members about the latest membership benefits through in-app push notifications.
However, one-way communication was not very practical for selling. The brand was also uncertain of its marketing investment returns because the mobile operating system did not allow developers to track open rates.
Members could simply opt out of notifications without them noticing. Besides, the notifications were basically one-liners, making it very challenging to catch the attention of different target groups (ladies, men, kids) with such a generalised message.
In early 2022, the brand deployed WhatsApp Business API to distribute exclusive coupon books to more than 100,000 members. They personalised the messages with variables and added a WhatsApp quick reply button.
When the members clicked the “redeem in store” button, it automatically triggered a pre-customised message with redeeming details. They also created automation settings to assign conversations to a human agent for converting high-potential leads. Bossini saw a record high message open rate of 80 per cent for this campaign. As a result, 18 per cent of its members were directed to retail stores and spent on buying, even amid social distancing.
Reduce bad costs
Cutting costs is necessary when nobody knows what the future holds. But careful not to sacrifice product quality, which loyalty greatly depends upon. Focus on expenses that are not aligned with the company’s growth strategy.
Bad costs have different definitions for each retailer. ‘Bad’ could refer to the unused retail space or retainer fees to maintain different IT systems. These fixed costs are incurred regardless of how much revenue your business is generating.
For others, it is the time cost to complete repetitive administrative duties like data entry. As many retailers adopt an online-to-offline approach, order fulfilment could also create bad costs if too many resources focus on maintaining regular operations rather than nurturing growth.
Here are some suggestions on how to spend your expenses wisely:
- Start audit expenses and compare the cost-benefit in a different situation.
- Run a pop-up shop instead of maintaining a brick-and-mortar all year.
- Check for pay-as-you-go services and flexible monthly subscriptions.
- Use commerce software that integrates automation for order fulfilment, payment solutions, and customer service workflow management.
Use savings to reinvest and gain new market share
Researchers suggest that recession creates a less rivalrous environment, in which early movers gain significant profit advantages and become the dominant player. If you have strong cash flow, detailed market research, and excellent products, go against the ordinary intuition. Don’t be afraid to expand and gain new market share.
Also Read: How small companies can prepare for recession
For growth in retail, tapping into the social commerce market is an unstoppable trend. People spend more than 80 per cent of their screen time on social platforms. By 2028, the market potential is expected to rise to 3.37 trillion.
Social commerce essentially means creating a complete customer journey within social media apps (e.g., Facebook, Instagram, and Tiktok) from discovering new products, checking reviews, comparing prices, making an order, and paying. Investing in social commerce makes launching in a new market overseas easier and cheaper without hunting for physical stores.
Note that selling on social media is different from the e-commerce realm. Traditional e-commerce is very much calculated. Customers actively identify their needs before proceeding to a retail site. Buying on social media is much more spontaneous.
People are inspired by what shows on their feeds and influenced by friends’ recommendations. Retailers definitely need to update their approach and meet the customer where they are.
Besides creating a shop in the socials, many brands also use automation tools to optimise conversions from comments, live streams, and story mentions. For example, sending customised shopping cart details and one-click checkout links through DMs encourages live shopping.
Concluding thoughts
Doing business in a challenging economic climate where a recession is looming in the corner, is a time for reflection and transformation. Retailers should consider this as an opportunity to evaluate their sales, inventory, and customer habits, reduce bad costs and invest in building better market expansion strategies. It will be a bumpy ride while sailing into a storm, but it will also make us more resilient.
If you are looking for social commerce solution services, check out SleekFlow’s retail O2O solution. We enable a complete customer journey across SMS, live chat, and popular social and messaging services like WhatsApp, Facebook, Instagram, or whatever your clients prefer.
Our customer engagement solution allows businesses to enhance cross-departmental collaborations, manage all customer interactions, blast out automated campaigns, and optimise the payment process to boost sales all in one.
Interested? Talk to our localised experts in Hong Kong, Singapore, Malaysia, the United Kingdom, Brazil and Europe.
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