After two years that have been full of challenges, from Brexit to the pandemic, the UK’s cost of living crisis may still be the largest challenge business owners have to wrestle with so far.
Retail can be resilient and businesses, especially smaller retailers, have proven their ability to pivot many times over the last two years. Currently, there’s a decision every business owner has to make and yet another form of resilience required. How much can they increase their prices verses how much they have to absorb increased costs?
Big retailers devise various strategies to deploy in order to protect their profit margins whilst retaining customers – they will make staff cuts, squeeze suppliers and adopt ‘shrinkflation’ tactics. With not as much flexibility as the big players, how can small business owners counter price increases impacting their bottom line? Here are five suggestions.
Review profit margins
Retailers should be double and triple checking their profit margins, especially if they haven’t reviewed them in a while. Knowing, to the penny, how much it costs right now to buy or create their products is vital. They must check every invoice, as price increases have taken place across most items and services.
Look at costs
If increasing prices isn’t a straightforward option, business owners should look if they can trim the cost of their product without compromising brand or beliefs. Small businesses should check their stock levels – cash tied up in excess stock at times like these is an area of their business to tackle.
Know your customer?
Keeping their customers at the heart of the business always helps retailers through the toughest of times and of course future proofs their loyal base. Small businesses especially should not shy away from talking to their customers about the cost of living pressures. Retailers can test out any price increases to further understand their customers wants and needs – and then only increase prices incrementally.
Once business owners have thoroughly reviewed their circumstances – that’s the time to consider changes. Not simply price increases but perhaps offering an alternative product with more pleasing profit margin. Steph Dunleavy, Managing Director of jewellery business Soul Analyse shared that choosing to absorb the costs had been difficult but forced them to “get more innovative” and as a result they have launched new jewellery collections “using different materials, such as sterling silver (instead of our usual stainless steel), which we charge in excess of £35 for per piece”.
“This has allowed for better profit margins but more importantly, has also opened up more opportunity among a different kind of consumer – one who only wears precious metals and prefers to spend more on jewellery”.
Authenticity and honesty matters to consumers – especially with bad news – so be clear. Tell customers prices are increasing and avoid other terminology when communicating this. Customers are still buying and spending but confidence is low so communicating value to customers is crucial – do this often and consistently.
James Leinhardt, CEO of Levitex – the ‘Sleep Posture Experts’ said “we’ve been very honest and open about price increases with our customers, we’ve communicated it via both organic socials and email, and the reaction has actually amounted to an increase in sales”.
There is no one-size fits all answer. However, retailers who give time to review and analyze exactly where their costs and profits are right now have more power. Managing this profitability roller-coaster and walking the line between what they need to charge and what their customers pay will be key for business owners navigating 2022.