Risk Management in a Changed Retail Environment
The retail landscape has shifted irrevocably. The new normal has changed how people shop, what we buy and how much. Over the past two years, retailers have been left scrambling to adapt, while contending with shrinking markets, increased restrictions and store closures.
“The future is looking increasingly uncertain”, says Helen Dickinson, CEO of the British Retail Consortium. With new geopolitical events adding further pressure to the industry and consumer confidence dropping, retailers must consider their risk management strategies.
Cost of living crisis
With the cost of living continuing to spiral, consumers are feeling the squeeze. Despite the measures set out in Chancellor Rishi Sunak’s Spring Statement, with inflation rising to 6.2% – the fastest rate in 30 years, towering energy bills and fuel costs mean households will be cutting back to cover their costs.
According to the Office of Budget Responsibility, real household disposable income is set to fall more than 2%, the largest drop in a single financial year since records began more than 65 years ago.
The first thing to go will be discretionary spending. And, with travel now reopened, retailers have even more competition when it comes to winning a share of the purse. All while dealing with their own rising costs and inflation.
Retailers will be faced with tough choices in the months to come around whether to absorb rising costs or pass them onto consumers, at the risk of losing business. Efforts must be focused on keeping consumers spending, utilising discounts, improving customer experience and offering better value for money – all things consumers will be on the lookout for.
The global landscape
Retailers are also having to contend with geopolitical tensions. The Russian invasion of Ukraine has led to brands halting their Russian operations, closing stores and stopping any and all business in the country. The value of the ruble has fallen off a cliff and Russian banks are facing sanctions meaning it’s becoming harder to move money out of Russia. Not to mention the reputational risks of doing business in Russia.
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Supply chain risks
Supply chains have been hit, too. With growing debts across the global supply system, smaller retailers and suppliers are struggling to stay afloat, seeing drops in financial health and core operational and structural health. While larger businesses are able to thrive, with better financial health leading to stronger supply chains and increased resources, small companies can’t keep up.
This will inevitably lead to companies cutting corners due to the financial strain. These businesses will use all their resources to keep their heads above water, making them unable to invest in things like cyber security, environmental, social and governance initiatives, product research and development and more.
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Climate concerns
Extreme weather has an impact on retail. Earlier this year, stores saw decreased footfall due to Storm Eunice. As we expect more such weather events in future as a result of climate change, stores will need to factor this into the strategies. From a logistical point of view, extreme weather can also cause supply chain disruptions and issues for manufacturers in countries more severely impacted by harsh weather changes.
It’s not all doom and gloom
While the situation is certainly a challenging one, there has been growth in typical ‘try before you buy’ areas such as fashion, homeware and furniture. In February 2022, retail sales increased by 6.7% across these areas, compared with the previous year (when all non-essential retail was closed). This surpassed even pre-pandemic levels, although the BRC pointed out that this growth also reflects the current inflation, potentially more so than an actually increased volume of consumer purchases.
The warmer weather also helps spur a rise in spending, with the spring sunshine drawing out more shoppers and high streets and retail outlets seeing an increased footfall.
Retailers have had a lot of hardship over the last few years. When it comes to staying afloat, a robust risk management strategy can help businesses weather the storms.
To speak to a professional about retail risk management and retail insurance, contact Full Time Cover on 0207 923 4191. We want to support businesses through these challenging times, with impartial advice and guidance tailored to you. Get in touch today.