Faced with inflation that remains uncomfortably high despite a series of interest rate hikes, just over half (51%) of retailers are planning to raise product prices — at least slightly — this year, according to the 2023 BDO Retail CFO Outlook Survey. The 100 responding retail CFOs that were surveyed in October 2022 represent companies generating revenue ranging from $250 million to over $3 billion annually.
But any survey provides just a moment-in-time snapshot, and one of these retailers’ biggest concerns — a glut of inventory — could actually lead to discounting rather than higher prices. Just over one-third (34%) of retailers said they expect to face “extensive excess inventory” in 2023. And while supply chain issues are expected to be less severe in 2023 than they have been over the past few years, 82% of these CFOs cite supply chain disruption as posing some, or a significant, risk to their business.
Retailers “must focus on both selling the products they have now and ordering appropriately for the months ahead, particularly amid uncertainty around consumer spending,” according to the report. “Depending on how well they forecast, if spending tapers off further, retailers may once again be left with more inventory than they planned. Unfortunately, nearly half of retailers surveyed (46%) expect their supply and demand forecasting will be inaccurate in the year ahead, which will most certainly lead to additional difficulties.”
Retailers are planning a range of responses to their supply chain challenges, leading with increased investments in supply chain technology: 46% plan to boost investment in this area in 2023, up from 34% last year. Another popular move: identifying alternative or backup suppliers, chosen by 38% of respondents this year, down from 49% in 2022. The higher figure last year was likely a response to the factory closings and supply chain bottlenecks that marked the first 18 months of the COVID crisis.
These tech investments are likely to be crucial. “When we’re talking about the inventory buildup, it should be a strategic discounting/promotional strategy based on sophisticated customer data analytics,” said Ted Vaughan, Audit Office Managing Partner at BDO in an interview with Retail TouchPoints. “Retailers are seeing these tech investments to strengthen supply chain capabilities as a way to have better info for making better decisions. What they must avoid going forward is going to extremes — first too little, then too much — and that’s where the tech comes into play. Retailers need insights into supply chains, both their own and their suppliers’.”
BDO’s National Digital Retail Leader Robert Brown agreed with the importance of tech investments, stating bluntly that “companies that don’t replace their tech going forward will be replaced by those that have.” The tech retailers choose, however, needs to support a specific business need or pain point.
“We see clients all the time that, unfortunately for them, have made tech choices because it checks a box versus giving them increased reach and options,” said Brown in an interview with Retail TouchPoints. However, he’s encouraged that rather than just “hunkering down,” many retailers are thinking about new ways of conducting business.
“Say you have brick-and-mortar stores and also ecommerce and you want to adopt BOPIS,” said Brown. “You’ll want a single supply chain that supports all of them. The question to ask is, how do I use technology to increase efficiency and expand my reach to provide consumers with more choice?”
Multiple Insights Generated by Customer Data Analytics
In addition to supply chain technology, another key investment area in 2023 will be customer data analytics, according to the survey. The responding CFOs say they will use this technology to:
- Better predict and manage customer demand to make inventory decisions (58%);
- Make real-time recommendations to customers (57%);
- Promote interconnectivity via loyalty apps, the in-store and online shopping experiences (54%); and
- Cultivate a more tailored product assortment (47%).
Overcoming Fears About AI
Deepening their knowledge about customers also will require retailers to start leveraging AI-powered solutions in earnest. “One of the ‘scary’ words for retailers is the AI label,” said Brown. “But smart chatbots, for example, are an opportunity where they can improve customer service and their ability to respond, because data within a business can be indexed quickly and effectively” with AI tools. Better-organized, easily accessible information can empower customer service agents and salespeople even if AI isn’t used for customer-facing functions.
The stakes are high for all types of retailers, but particularly for those competing with DTC brands. Brown credits companies such as Casper, Bombas, Warby Parker and Purple for establishing direct relationships with consumers that allow them to know how best to service them. DTC brands also often have, due to their vertical structure, a better ability to connect their manufacturing to the needs of their clients and constituencies.
“DTC is emerging with great profit margins,” Brown noted. “They may not have multi-billion-dollar topline revenue, but [their operations] are often accompanied by lower bottom-line costs.”
The key recommendation to retailers is to treat data as their friend rather than their enemy, and to embrace AI. “It’s the data we don’t understand that will hurt us,” said Brown. “It’s like flying a plane; when the plane runs into turbulence, pilots use technology to stabilize it, and retailers can do the same thing. They can use AI to better understand their business and where they need to improve.”