When retailers take stock of holiday sales in January, they will be focusing on what lies ahead in 2022. Inflation, supply chain issues and COVID will be among the top issues weighing on an industry already facing challenges from Amazon and fickle consumers.
The delays, backlogs and shortages currently being faced by the industry will be a part of business as usual going forward. Retailers and brands anxious to bring product into the U.S. are using air freight or in some cases are renting entire cargo ships instead of containers. When containers sit on the dock, they clock up fees as well. All of this means that shipping costs are increasing dramatically.
Not too long ago, the conversation was about the U.S. retail market being over-stored with too much product and too many choices. This led to an environment where consumers were trained to wait for promotions and where many retailers built heavy markdowns into their business models.
The script has flipped. With less product to sell, and with shipping costs increasing, retailers need to maintain prices in order to make their revenue and profit targets. Consumer demand has thus far been very strong, and they seem willing to pay full price and even higher prices – to a point. At what point will it break down?
One retailer is bucking the trend, and it’s worth paying attention. Walmart has had a longtime strategy of keeping prices low. Doug McMillon, the company’s CEO, doesn’t plan to change that in the current environment.
“We’re proud to try and hold prices down,” McMillon said in a November interview. “Our conversations with suppliers today, tomorrow will be ‘How can you help us roll back prices and swim upstream and be different than everybody else?"
Walmart actually sees inflation as an opportunity to gain market share by not raising prices to its core customers who expect value. The company will also evaluate each category and will make pricing decisions deliberately and strategically.
Accurate Pricing is the Key
Understanding what the consumer is willing to pay is critical during these times. But it’s not as simple as it sounds. “The consumer” means something different for each brand and category. For example, luxury shoppers may be less price sensitive than consumers of mid-tier brands. Highly competitive or commodity categories have less pricing power than categories with higher differentiation.
Price elasticity can also change over time. With prices in highly inelastic “essential” categories such as food and gasoline increasing, consumers are left with less disposable income. This can make shoppers more sensitive to prices in other categories.
All of this means that it’s important to get a current, forward read on consumer price elasticity, at a category, brand and product level. Using real-time Voice of Customer data combined with predictive analytics, retailers and brands can understand where they have opportunities to hold or increase prices, and where they may need to plan for promotions.
Major retailers and brands use First Insight to inform better pricing decisions – with significant bottom-line benefit. This Sourcing Journal video outlines.