How Irish retailers can respond to the challenges of 2022 and beyond

Traditional bricks and mortar retailers, already under intense pressure from online rivals, must now contend with the ongoing impact of COVID-19 along with rising inflation and changing consumer behaviours.

The pandemic has had a profound influence on consumer habits and visits to physical stores have declined noticeably. Bricks and mortar retailers have little choice but to establish an online offering. But this comes with its own challenges, not least cost.

The online imperative

The shift to a ‘brick and clicks’ model brings with it increased cost in areas such as staff training, new IT infrastructure, investments in new website functionality, and the requirement to devote expensive staff resources to undertake fulfilment duties. In addition, many retailers may find it necessary to invest in new or upgraded inventory management systems in order to optimise stock.

Overlaying those operational costs is the need to increase marketing spend to attract and retain customers in the intensely competitive online marketplace.

Those additional overheads have the potential to negatively impact margins of the online offering as well as to undermine the bottom-line performance of the whole business.

Supply chain disruption

Retailers of all types must also contend with the quite severe supply chain disruption caused by COVID-19 and Brexit. A recent EY survey of 2,000 global CEOs showed that the vast majority (86%) have been impacted by the COVID-19 pandemic with 32% saying they have adjusted their supply chains to reduce logistical costs and uncertainty. 87% indicated that they have experienced significant increases in input prices with more than 40% of the increase attributable to raw materials, commodities and transport and logistics.

Trade between the Island of Ireland and Great Britain is significantly lower despite the provisions of the Trade and Cooperation Agreement and the Northern Ireland Protocol. At least some of that reduction can be attributed to the delays at ports and additional customs checks imposed as a result of Brexit.

To remain competitive, retailers will need to consider both operational and strategic changes to their supply chain management. On the one hand, holding excessive inventory can place a heavy burden on cash resources while on the other, insufficient inventory can result in lost sales or delays for customers. It is therefore imperative to efficiently manage supply chains effectively.

Among the actions retailers can take to address supply chain issues are:

• Seek to achieve a balance between orders and demand to match seasonal patterns
• Operate on the basis of worst-case lead times when ordering
• Establish a scenario planning system to enable longer range forecasting
• Establish a stock level monitoring system for key products and consider buffers to limit disruption
• Proactively engage with suppliers to manage medium term risk
• Build relationships with alternative suppliers to further mitigate risk
• Consider changes to the supplier footprint
• Invest in automation and digitisation where appropriate

ESG considerations

Retailers are coming under increasing pressure to ensure they have an appropriate environmental, social and governance (ESG) focused strategy in place. Shareholder activists, investors and consumers are all demanding to know more about the sustainability efforts, environmental practices, and social impacts of the organisations they do business with.

Retailers will therefore need to take a range of ESG factors into consideration in their strategies. These include ethical sourcing policies, waste minimisation, carbon emissions, labour relations, child labour, diversity and inclusion, privacy and data security, and socially responsible advertising and marketing.

In this regard, retailers need to ask themselves what ESG trends are likely to impact their business and look at how to create an ESG strategy that delivers competitive advantage and creates and protects value for stakeholders.

The challenges faced by retailers in today’s increasingly volatile and disrupted environment are severe but not insurmountable. Prompt action to put in place appropriate online, supply chain, and ESG strategies can help traditional retailers adapt and thrive in the new reality.