Three burning questions facing retailers in 2024
As always, a new year brings new challenges, opportunities and resolutions for retailers. Unfortunately, though, one thing that is unlikely to change in 2024 will be the economic pressures that overshadowed so much of 2023.
These economic pressures – from softened consumer spending to rising business costs – add a layer of uncertainty and volatility that make the already-challenging nature of running a retail business even harder.
Against that backdrop, here are three questions on the minds of retailers in 2024.
How will cautious consumer spending from 2023 play out in 2024?
After a year of uncertainty and caution in 2023, consumer confidence remains low in 2024. The lingering effects of the global pandemic, inflation, and regular interest rate hikes have left consumers more selective and frugal in their spending habits.
Data from Shippit shows that both the volume and value of online orders decreased in 2023 compared to 2022, however the average number of items per order was up. In fact, Aussies spent on average, $10 less per item online last year compared to the year before. This demonstrates that, when there are economic pressures, consumers gravitate towards brands whose USP is value, like KMart and Big W.
In 2023, we also saw a skew to spending during shopping events like Click Frenzy and Cyber Weekend with shoppers and retailers focusing heavily on these short-term sales events. Indeed, during Cyber Weekend over four million bookings were powered through Shippit. During prolonged periods of softened spending, demand builds up and then is released during these sales events. Retailers should expect the same in 2024 and should actively begin thinking about their strategy – from deals, to inventory to delivery – now.
What are the main things impacting the cost of business?
The top three costs for an online retailer are cost of goods sold (COGS), staff and freight. Whilst COGS has stabilised thanks to the normalisation on container shipping costs, staffing and shipping costs have continued to rocket. Inflation also impacted the cost of goods and materials, and the cost to produce a product, too. Across the boards, business expenses are up.
Take the cost of delivery, for example, which has increased dramatically over the past 12 months. According to Shippit data, interstate shipping cost witnessed a YOY increase of nearly 12%, rising on average $11.61 to $12.97. Most major carriers have increased their delivery prices to reflect their higher cost bases in recent times. It’s reasonable to anticipate more increases in 2024. We’re seeing more surcharges, more carriers shaping what they do and do not carry, and hidden fees for split orders from multiple stores.
Split order fees will be particularly pertinent in 2024, as more retailers adopt micro-fulfilment strategies like using distribution centres, warehouses and stores as fulfilment centres. The challenge for retailers is when a customer orders numerous items in one order, each one may come from a different micro-fulfilment centre.
That means each involves a separate delivery cost, which adds to the already skyrocketing cost of delivery for a retailer. We’re seeing retailers going out of business because they cannot sustain the cost of delivery. Even as costs increase, retailers can’t simply increase prices to protect their profit margin, because that would further erode consumer spending. There are, however, things retailers can do.
The rise and success of Amazon continues to exacerbate this pressure with cheap, fast and reliable delivery underpinning their recent growth. With the foreign retailer now controlling 16% of Australia’s non-food online retailing, reducing delivery costs and increasing reliability should continue to be a key area of focus for retailers looking to succeed in 2024.
How can retailers navigate these economic pressures?
The key for retailers in 2024 is focusing on their existing investments, and how to get the most out of them. Understand consumer behaviour, expectations and pain points and tailor strategies accordingly.
One of the most crucial, yet sometimes disregarded aspects of the shopping experience, is delivery. It has a big impact on customer satisfaction, loyalty, and recurring business. In an environment where competition and consumer expectations continue to escalate, efficient delivery serves as a competitive advantage. A poor delivery can be a disaster for businesses.
Effective inventory management allows retailers to keep track of supply, manage it, and effectively promote it. For example, combining data-driven insights of stock can help find products that are in high demand or can be cleared at a discount.
Automated fulfilment technology streamlines operations, saving time, money and leaving no room for human errors. By assessing tech stack’s efficiency, retailers can enhance customer service, order distribution, and ensure reliable, transparent and timely deliveries.
Irrelevant of a business’ size and operational complexity, its goals in 2024 should be to provide unbeatable experiences, drive unlimited efficiency and pursue sustainable growth. Consumer spending will remain cautious, the cost of doing business will remain a challenge, but there’s plenty of opportunity and reason to be optimistic for retailers who understand consumers’ expectations, focus on unit economics and rely on powerful technology.
Article originally published on retailbiz.com.au.
