August 13, 2008

How retailers can tackle inflation

The problem: Rising inflation is leading to the following problems:
  • Rising product costs
  • Limited ability to raise their prices

However the current inflationary period may actually be a business opportunity for some retailers, especially if they make selective changes in inventory management, pricing and promotions.

  • Some retailers may want to start holding much more inventory than they did in the past as a way to hedge against future price increases. Though there is a risk of price coming down or storage of perishable and fashionable goods, retailers can make a reasonable assessment of how much can be held based on their experience.
  • Preparing price sharing agreements with suppliers
  • Sourcing local products to cut transportation
  • Value-based retail formats get more business since even consumers want to save some more money by cutting their expenditures at expensive stores.
  • Pushing the private labels to give the customers a better deal without effecting margins. Also it keeps the manufacturers in check preventing them increase prices.
  • Companies with enough cash to boost spending on marketing can use a bad time to focus on gaining more market share.
  • If customers are accepting cost plus pricing, use markups to increase gains. For e.g., if you get a $1.00 product from supplier, and use 10% markup to get 10 cents profit, in times of inflation when the supplier gives the same product at $1.10, you get a profit of 11 cents (10%).

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