Retail Express General Manager – Retail Lead Europe Ed Betts explains why this year’s Golden Quarter will be even tougher than the last and how AI-driven merchandising can help retailers thrive as inflation and interest rates bite hard…
The 100-day countdown to Christmas – a period which also includes key dates such as Halloween, Black Friday and Cyber Monday in quick succession – is the busiest period in the retail calendar, and unquestionably the most challenging. This year’s Golden Quarter will likely be one of the most difficult in recent memory.
Retailers will well know how incredibly difficult the 2022 Golden Quarter was. The cost-of-living crisis hamstrung customers’ appetite for spending, strike action disrupted supply chains, and international incidents negatively affected global trade and freight costs. Retailers are approaching 2023’s key period still reeling from the last, and though the economic balance has shifted slightly, inflation and interest rates prove it has not necessarily changed for the better.
2022’s prohibitive energy prices forced many retailers to hedge those costs, meaning their delayed bite is now being felt across the industry. Inflation has been volatile, and while the Bank of England expects it to fall to 5% by the year’s end, its 2023 peaks have hurt retailers’ razor-thin bottom line. And the Bank of England’s solution to inflation, a dramatic rise in interest rates, leaves consumers squeezed, and even less willing (or able) to spend.
Worse, retailers are not the only ones under pressure. The wholesale market has not yet adjusted to a more manageable level. Supplier prices remain high due to poor worldwide harvests, the impact on commodity supplies such as grain and sunflower oil due to the Ukraine war, and the lingering effect of the energy price crisis. These costs will fall over time, but there is no time to waste. Positioning one’s business to succeed despite a potentially painful Golden Quarter demands a new approach, and the agility to make key decisions quickly and with confidence.
The power of promotion
Focusing on the Everyday Low Price (EDLP) strategy which typified last year’s Golden Quarter is not, in the current circumstances, necessarily a tactic that will suit many retailers. With food price inflation peaking around 17%, GlobalData research suggests that 48% of shoppers have begun to trade down, shifting to discount retailers. For most, immediately matching the prices of such retailers is unfeasible but retailers can deliver value and attract customers to return through promotions and loyalty card pricing. In a time where many customers’ allegiance is in flux and competition is high, promotions such as loyalty card pricing on the products they desire may be the key to keeping them on board.
Pivoting to create new promotions, though, must be done with the utmost precision and care. Communicating the best promotions to consumers is surrounded by stringent regulations, meaning any promotion’s advertising must be consistent and clear, and they must be planned to be considerate of price establishment periods; the wrong promotional price at Halloween, for instance, could prevent a crucial discount from happening at Christmas.
Suppliers must also be in agreement. Given that most Joint Business Plans were ratified far in advance of the Golden Quarter, a late adjustment could leave them unable to meet proposed stock levels or require a renegotiation of terms. Inside a retailer’s walls, an error made under pressure or a failure to negotiate properly could lead to key lines being miscalculated, loss-leading ‘stunt’ offers falling flat, or the wrong levels of stock being ordered, leaving excess stock in warehouses or disappointing the customers that such promotions were designed to delight.
A new era of algorithmic retailing
Meticulous planning, next-level agility and precise co-ordination are key, then, but these are incredibly difficult to achieve under a traditional retailing model. Aligning every department, supply line, advertisement and product is a time-consuming and labour-heavy task, one which must often be performed at the expense of other functions. A chaotic mix of emails, phone calls, spreadsheets, and hurried meetings between multiple departments does not lend itself to the kind of precision that the Golden Quarter demands.
Intelligent merchandising is the modern alternative. By consolidating every data point of a business and then applying artificial intelligence (AI) models to that data, an intelligent approach can replace disparate and loose planning procedures with powerful central planning tools. These help to align all business departments by default, and generate AI-driven insights which can help retail businesses discover new opportunities and spot (or automatically stop) promotion errors before they happen. Such an approach ensures that every decision made is based on a shared single version of the truth, one which avoids siloed information and conflicting practices by presenting a transparent plan that everyone in the business can get behind.
Success through simulation models
Intelligent merchandising relieves much of the intense pressure of the Golden Quarter and offers room to breathe. Making the most of algorithmic retailing, which employs AI to automate and drive recommendation systems, allows key staff to take a more holistic view. The process is taken care of – management can focus instead on the broad view of planning and performance during the Golden Quarter, and on improving relationships with partners and suppliers to get the best deal.
Such software can be put to work simulating plans prior to their release to market, taking current, historic and predicted trading data into account to model the potential outcome and requirements of any proposed promotional activity. It can aid in planning the full path of a promotion, from supply to advertising to deployment, and a view of historical data allows every promotion to be considered around price establishment restrictions and highlight hot-ticket items at a time when the purchasing profile of many consumers switches away from the regular basket to ancillary, once-a-year items.
Boosting profits beyond the Golden Quarter
The need to act quickly does not stop at planning promotions in the Golden Quarter, or indeed at adopting a new retail model to keep pace with others which are doing the same. The drastic market fluctuations of the past few years prove that retailers must move on from legacy models and employ the agility and insight of intelligent merchandising. With today’s ever-tightening margins, the ability to react quickly is the path to profit.
Embracing digital transformation today allows retailers to benefit from improved pricing, stronger promotional planning and execution, enhanced supplier relationships, and every other key process improvement that comes along with algorithmic retailing. It is the key which unlocks not only clean passage through the Golden Quarter but year-round efficiencies.
About The Author
Ed has worked in the retail industry for over 20 years and joined Retail Express in 2019 where he is General Manager for the UK and Ireland. Ed has extensive and specialty knowledge of retail category management, pricing and buying requirements having worked with several UK retailers, including 8 years at Asda where he developed and launched a standalone online wine service. Following this, he worked for Distell, a large international drinks manufacturer, where he managed strategic accounts across several major UK grocers including Morrisons, Asda and Marks & Spencer. Ed is also Retail Express’ Head Consultant helping clients make more effective use of the products and services as well as providing consultancy on the effective use of pricing and category management. www.retailexpress.com