Retailing during a recession isn’t straightforward by any means. Consumers spend less, manufacturing costs increase and all around things get tougher. Yet, a recession also presents retailers with a great opportunity to acquire new customers. Read on to find out how to beat the Death Spiral and drive sales during a recession.
What is the retail Death Spiral?
The retail Death Spiral is the vicious cycle that many retailers inadvertently enter when they cut costs in the wrong areas and fail to invest in the right areas. With a diminishing customer offering, your competitors gain an edge and poach your customers, reducing your revenue. This leads to further budget cuts and a greater sales decrease. And so the spiral goes.
Let’s imagine that you decide to terminate one of your most expensive leases during a recession to save costs. Unfortunately, the store you’ve closed was in a great location and your revenue starts to fall.
If you simultaneously fail to invest in tools to better choreograph the customer experience, you’re speeding up this Death Spiral of bad choices. Soon enough, your business will become unprofitable. Without radical change, your brand may even become irrelevant, forgotten by the modern consumer.
How to avoid the retail Death Spiral
To avoid the Death Spiral, retailers need to be able to adapt. To survive a recession in a retail business, you can’t play it safe. Consumers will start spending less, so it’s crucial that leading brands quickly adjust their strategy and invest in tools to create an innovative customer experience.
It wasn’t so long ago that enterprise brands faced the 2008 recession, arguably one of the greatest retail challenges of the 21st century. Retail sales hit a 35-year record low. Many enterprise businesses did not survive.
While businesses across retail and banking invested in customer experience technology to increase the customer offering, brands like KB Toys, Mervyns and Borders failed to innovate. With a sub-par store experience in a rapidly evolving retail world, these brands didn’t recover from the recession and all filed for bankruptcy.
Today, history is on the verge of repeating itself. It seems increasingly likely that the US economy will enter into recession in 2023. As such, retailers and banks need to start looking now for ways to push innovation.
Which retailers are driving innovation?
The following retailers adapted impressively quickly to a new retail landscape to create an exciting customer experience:
The electronics retailer quickly deployed a contactless drive-thru pickup service when the global pandemic brought in-store shopping to a halt.
Retail banking organization Citigroup was one of the only banks to have grown in the six years following the 2008 recession. They achieved this by making a quick pivot during hard times and rolling out extra services to enhance the customer experience.
To drive inclusivity and retail accessibility, coffeehouse company Starbucks has been launching signing stores across the globe, where all employees communicate in sign language.
Digitally-native British fitness apparel brand Gymshark recently announced that they’ll open their first brick-and-mortar store on October 29th in central London. However, as the UK enters a recession, the brand isn’t cutting any corners when it comes to the customer experience. Their flagship store will offer as many as 30 free gym classes each week, a community hub for socializing and personal styling sessions.
Beauty brand NARS is taking digital experiential retail to a new level with the launch of their global virtual store. Essentially a hybrid of the in-store and online shopping experience, customers can walk around the virtual shop on their mobile, utilize virtual try-on technology to test out different products or even book 1-2-1 sessions with beauty experts.
Seven Rules for Retailing in a Recession
To survive a recession in retail, try to stick to the following seven rules:
1. Launch customer experience software
2. Invest where the headroom is
3. Reduce bad costs
4. Reinvest your savings
5. Act fast
6. Rejuvenate your employees
7. Don’t understaff your stores
Rule 1: Launch customer experience software
Arguably the most important thing retailers can do right now is to deploy services that enhance the customer experience. While it may seem counterintuitive to invest during a recession (more on that later), having a more engaging customer experience than your competitors is a key way to boost your market share.
Here’s the top software solutions retailers need:
- Appointment Scheduling: Drive traffic to store with personalized appointments while providing analytics on when customers want service to optimize resource planning.
- Virtual Queue Management: Add customers to a digital queue when there’s a wait for service to manage peak foot traffic periods without having to increase resources. By keeping customers informed and updated about their wait they’re more likely to stay and wait, even if there is a wait for service. This tool also gives you data on when and why customers come into store in order to optimize your resource planning.
- Click and Collect Check-in (or Buy Online Pickup In-Store): Free staff to focus on service and store tasks between order collections. In peak traffic times, such as Black Friday, the check-in process means staff can prepare multiple customers orders at once, without having to go back to and from the service desk for each customer’s order. Again data helps to improve resource planning.
- Store Communication: Enable head office to easily communicate with store teams to keep morale and service levels up, while also improving efficiency.
- Task Management: Allow head office, regional managers and store managers to easily assign tasks and track completion across stores. Providing essential time and motion data to further improve productivity and resource planning.
- Event Booking: Show your customers that offering them a great experience is still your main priority. You can promote in-store and virtual events and uniquely utilize resources to you to uniquely utilise resources to engage with more customers at once.
- Workforce Management: Increase store team efficiency with a workforce management software that manages colleague breaks, availability and more. Your store managers can also assess team performance and quality of service.
Rule 2: Invest where the headroom
During a recession, businesses naturally try to make lots of different changes–cutting store hours, rethinking store layout, expanding loyalty programs and more. However, before retailers try to pull off too many things at once, they need to have a strong idea of where their opportunities to retain or grow their market share lie. If you don’t, when the worst of the recession comes and resources are limited, you won’t see the high returns you need to thrive.
To make sure you’re making the right changes, calculate your headroom (the market share you don’t have minus the share you won’t get). Your competitor’s loyal customers account for the market share you don’t have; your loyal customers represent the share that you do.
Clearly, protecting your most loyal customers is key during any time of economic uncertainty. However, if they start spending 30% less on consumer goods, this is directly going to hit your margins. That’s why it’s crucial that you also focus on your headroom–those customers who aren’t loyal to you or a competitor.
After all, if you’re only collecting 10% of their spend today, you can increase this to 20% or more by finding ways to engage with these customers. As such, by figuring out what services “switchers” want, you can dramatically increase your sales, even during a recession.
All too often, brand leaders don’t aim their initiatives at switchers and launch project after project without seeing any returns. However, when retailers take the time to figure out how to go after the headroom, they’re much more likely to turn switchers into loyal customers. In doing so, you can dramatically boost your revenue.
When a major retailer came to us, they were already receiving a large percentage of their loyal customers’ spend. Essentially, there wasn’t much more room for growth by targeting their loyal customers.
However, they found that switchers were looking for a personalized 1-2-1 VIP experience. These shoppers ventured into our clients’ stores but had a lower Average Transaction Value (ATV) because they weren’t receiving the hands-on guidance they wanted.
When management realized this, they were no longer clutching at straws and talking about changing their store layout without any overall aim in mind. They were able to narrow down their focus and ask themselves, “What can we do to create a more personalized experience?”
By deploying our Appointment Booking software across their brick-and-mortar and online stores, they were able to offer the personalized experience switchers were looking for. In turn, these switchers became loyalists and conversion increased by 48%.
Ultimately, they were able to drive sales and gain a competitive advantage simply by making one well thought out change rather than by taking several costly stabs in the dark. While their competitors’ market position continues to weaken as a US recession looms large, our client is driving sales and readying to weather the storm.
Rule 3: Reduce Bad Costs
One of the greatest mistakes retailers make during recessions is to cut costs unilaterally. It’s easy to understand the logic–by cutting costs, you’d think you can protect your bottom line.
However, you run the risk of cutting good costs. These are the costs that play a vital role in helping you to create an experience your customers value. Cutting good costs may help in the short-term but inevitably your profitability will hit a brick wall and fall again.
Generally, it should be easy to figure out which costs help you to create a popular store experience.
Ask yourself these questions to find out if a cost is worthwhile:
- Does it facilitate convenience?
- Is it helping to create a unique experience?
- Are you gaining an edge on your competitors?
If the answer is no, the chances are you’re looking at a bad cost. It’s time to think about reducing your spend.
Common good cost examples
Here are some examples of good costs:
- Digital solutions that streamline your operations, administration tasks or add to your customer offering
- Rent for well-located stores that are highly profitable
- Extended store hours during busy periods
- Virtual queuing technology that reduces walkouts
Common bad cost examples
To help identify bad costs, consider these classic examples:
- Unnecessary seating in a store primarily used for takeout
- Extended store hours during quiet periods
- Archaic administration processes
Rule 4: Reinvest your savings
By cutting a bad cost, you’re making your business more cost-effective. You’re also creating an opportunity to create a good cost. It may seem counterintuitive to reinvest your savings during a recession but the only way to stay profitable when times are tough is to find new ways to engage with customers.
In their Next Consumer Recession Report, Management consultancy firm Deloitte found that organizations that reinvest their savings during a recession show a significantly higher growth rate during the recovery period.
As the graph above highlights, you can double your revenue growth during recession recovery by reinvesting in the correct tools to enhance your store operations.
Rule 5: Act fast
Generally, your customers could always be spending more in your stores. To make it through a recession, retailers need to persistently figure out where the gaps in their experience are and act fast to boost ATV.
With the retail landscape changing so quickly, incrementalism won’t work–if you’re slow to evolve, you can bet your competitors will race ahead of you.
The coronavirus pandemic proved this many times over. Before the pandemic, customer demand for virtual services was still a long way from trending in the world of retail. Yet, that all changed when national lockdown restrictions forced retailers around the world to think fast. Many rapidly deployed virtual services to go where the headroom was.
Rule 6: Rejuvenate your employees
There’s a myriad of different ways to improve the customer experience. Arguably the simplest and most effective method is to look after your employees. If your store team enjoys working in your stores, they’re much more likely to deliver better customer service. In the long-term, you’ll retain more customers.
To rejuvenate your employees, you need to invest in them. Invest in the proper training, the right tools to help them do their jobs better and an Employee Wellness program to make them feel valued.
A simple morale boost can go a long way when you’re retailing in a recession. Gartner recently found that driven employees have a 1.7% quota attainment than employees who feel unfulfilled. Put another way, by automating menial tasks, your employees will enjoy the workday more and hit their sales targets.
Rule 7: Don’t understaff your stores
While overstaffing is certainly a bad cost–understaffing is far worse. In a recent survey, 38.9% of consumers told us that a lack of available staff is one of the top causes of poor customer experience.
For customers, there are few things more frustrating than having to walk around for minutes on end to ask where a product is because your staff are nowhere to be found.
When you set staff levels on sales quotas, you’re unwittingly entering a Death Spiral of bad choices. Understaffing your stores when you’re expecting fewer sales is a self-fulfilling prophecy. Reducing your staff will guarantee lower sales. With lower sales, retailers then have to cut other costs–or even reduce staff further, exacerbating the problem.
Instead, consider setting staff levels based on foot traffic. This way, you can better prepare your retail business for peak season and other high traffic times. Your store teams won’t come under unnecessary strain due to understaffing because you’ll always have the right amount of staff to manage an influx of customers. As such, you’ll ensure that every customer is upsold and that you’re increasing your Average Basket Size (ABS).
One of the simplest ways to establish what the right number of staff to have in your store is to use historical absenteeism data and Business Intelligence tools.
Let’s say your sales figures dropped by 10% on a day when you were supposed to have 25 staff in-store. With a little research, you find that only 21 employees actually came in to work. In this instance, there’s a good chance you can increase your revenue by 10% by increasing staff levels.
Find out more
Qudini is trusted by leading retailers and banks including Samsung, TUI, Citibank and many more. Contact us to learn more about how we’re supporting enterprise brands with our Retail Choreography platform as a recession approaches.