By Doug LaBahn, CMO of Cin7
Inflation hit a 41-year high in June 2022, and consumers and businesses are facing yet another global crisis as they continue to bear the weight of other macroeconomic challenges – including supply chain disruptions, supply shortages, and other lingering implications of the COVID-19 pandemic.
Many unknown variables are still at play, and consumers are growing nervous about the rising costs of goods and high inflation rates. Many are looking for ways to cut costs, shifting purchases to lower-priced generics and adjusting their shopping habits. As consumers lower spending, small and local retailers will take the brunt of the hardship, as they typically cannot afford to lower prices to match buyer expectations the way most big-box retailers can. These small businesses must find ways to stay afloat in times of crisis, otherwise, they risk being lost to a recession.
How Consumer Spending Is Changing
During the height of the pandemic, people cut down on expensive entertainment such as dining out, traveling, and other activities outside of the home. This led to significant savings during the height of the pandemic as consumers sheltered in place. Now, however, consumers are taking trips to postponed weddings, family get-togethers, and long put-off vacations. So, as they spend more on services and come across unavoidable product inflation, they must tap into those savings to meet the rising cost of necessities. With economic uncertainty in the air, consumers are not eager to lose their hard-earned cash and are instead spending cautiously as they tighten their purse strings.
Recently, Cin7 conducted a study focusing on how fears of inflation are impacting consumer spending. According to the survey, 81% percent of consumers are worried about current inflation rates, and only 22% don’t have plans to reduce spending – meaning the majority of buyers are altering the way they shop.
Consumer preference toward smaller product sellers is changing, largely due to product pricing. The survey found that nearly half of buyers (45%) ranked the price of goods as the most important criterion they consider when deciding whether or not to make a purchase. Item quality, online ordering capabilities, and speed of delivery – all criteria that small and eCommerce-focused businesses tend to specialize in – ranked significantly lower in importance. Unfortunately, and even more telling, supporting a local or small business owner fell second-to-last on the list, with less than 10% of respondents selecting it as an important criterion when making purchasing decisions.
We’re already seeing consumers start to cut back on their spending, primarily by eating out at restaurants less often and reducing purchases of non-essentials, such as clothes and toys. This is detrimental to small and local retailers and signals challenging times ahead for two industries that have already faced immense economic difficulties in the past two years.
Small Businesses Are Getting The Short End Of The Stick
Small businesses and local product sellers are undoubtedly taking the brunt of the negative impacts of current inflation, especially as they continue to feel the results of ongoing supply chain disruptions and labor shortages. According to a Veem report on the state of small businesses, 41.5% of small businesses said they experienced inflationary pressure in early 2022, compared to 25% within the past year. Business owners have a negative outlook on upcoming months, with over half saying inflationary pressure will not be resolved by the end of the year.
Cin7’s study found that half of consumers will make purchases wherever is cheapest, and the majority don’t have any issues with shopping at big-box retailers. However, convenience and location are also important factors, and 46% of buyers would shop at locally-owned stores if prices were about the same as other shops.
Surprisingly, online sellers may be most at risk these days. The recent 10% layoff by Shopify and Amazon’s 4.3% decline in online sales clearly show the slowdown of online shopping. Buyers are looking for a simple, streamlined, and convenient shopping experience, especially when making purchases online. If retailers don’t ensure that their websites are easy to navigate and that they have products available at competitive prices, they risk losing business to brick-and-mortar shops – whether local sellers or big-box stores – who provide a familiar, swift shopping experience.
Adapting To A New Economic Landscape
eCommerce retailers and smaller, local businesses need to find ways to retain customers while reducing their own overhead costs. High costs of raw materials and expensive rates for product storage space can eat away at budgets. If not managed properly, small businesses could fail from simply trying to keep the lights on.
There are a few practices that small businesses should avoid adopting as they work through the pressures of today’s market, however tempting they may seem. Specifically, altering return policies, such as solely offering store credit instead of cash refunds, can easily backfire, as it will likely upset customers and destroy their trust and loyalty to your small business. Another risky practice is reducing the variety of products carried. Sellers might attempt to stock only premium brands with higher sales points while discontinuing lower-priced items, but consumers will see reduced inventory as financial distress and may take their business elsewhere.
Instead of implementing temporary, risky business practices, product sellers can operate their business more efficiently and keep costs down using cloud-based technology that allows them to automate tedious tasks and optimize operations overall. The right tools will allow small businesses to better manage their inventory and warehouse capabilities, ultimately helping them expand sales channels, accurately forecast inventory to avoid overstocking, and navigate ongoing supply chain disruptions. Not only will this help retailers save money, but it also will create a better experience for their customers, improving customer retention.
Though small business owners may feel discouraged by the current market climates and dips in consumer spending, there are technological solutions that can empower them to make smarter spending decisions and even grow their businesses during this time – allowing them to survive the current economic uncertainty.
About The Author
Doug LaBahn is CMO of Cin7, a leading provider of cloud-based inventory management software. An experienced product marketing leader, Doug has an outstanding track record of scaling companies by bringing strong value propositions and business models to market to rapidly grow SaaS revenue. He is highly customer-focused and passionate about the role that storytelling, digital/field marketing and service design all play in scaling product portfolios within small biz, consumer and mid-market segments.