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21 December 2023

Rising Costs in Retail

Rising Costs in Retail

With costs continue to rise in the retail industry and consumers having less disposable income, managing prices is a constant challenge for businesses. The top causes and contributors to rising costs in retail include:

  1. Inflation: General inflation in the economy can lead to increased prices for goods and services, impacting the cost of goods sold (COGS) for retailers. This can include higher prices for raw materials, transportation, and other essential inputs.
  2. Labour Costs: Employee wages, benefits, and associated costs are a significant portion of retail expenses. Increases in the minimum wage (next April this rises to £11.44 per hour) competition for skilled labour, and the need for additional staff to meet demand all contribute to rising labour costs.
  3. Real Estate and Rental Costs: The cost of leasing or owning retail space can be a substantial expense. As demand for prime locations increases or if rental rates rise, it directly affects a retailer's operational costs. Business Rates continue to be a source of pain for high street shops which makes them uncompetitive in comparison to online retailers and the Government’s unwillingness to tackle the imbalance stems from Business rates being a crucial source of income for the Treasury.
  4. Supply Chain Disruptions: Events such as natural disasters, geopolitical issues, and global pandemics – all of which have hit us recently – can disrupt the supply chain, leading to increased costs for logistics, transportation, and inventory management.
  5. Technology Investments: While technology can improve efficiency, it also requires significant upfront and ongoing investment. Retailers often need to invest in point-of-sale systems, e-commerce platforms, inventory management software, and other technological solutions to stay competitive.
  6. Regulatory Compliance: Adhering to regulations and standards, whether related to safety, environmental sustainability, or data protection, can require investments in compliance measures and staff training.
  7. Marketing and Advertising: Competition in the retail sector is intense, and retailers may need to invest heavily in marketing and advertising to attract and retain customers. Digital marketing, social media campaigns, and loyalty programs can contribute to increased costs.
  8. Energy Costs: Operating retail stores requires energy for lighting, heating, cooling has become incredibly important with recent energy and fuel price rises. With the war in Ukraine looking as though it will continue to years to come, fluctuations in energy prices will continue to impact operational costs, especially for large retail chains with multiple locations.
  9. Returns and Reverse Logistics: With the growth of e-commerce, retailers face challenges related to product returns and reverse logistics. Handling returns can be costly, as it involves processing, restocking, and sometimes disposing of returned items.
  10. Tariffs and Trade Disputes: Import/export tariffs and trade disputes between countries can affect the cost of imported goods, potentially leading to increased prices for retailers who rely on international suppliers. Another recent phenomenon for British retailers in the aftermath of Brexit.

To mitigate the impact of rising costs, retailers often need to adopt strategic measures such as:

  • Operational Efficiency Improvements: Streamlining operations and supply chain processes can help reduce costs.
  • Negotiating with Suppliers: Building strong relationships with suppliers and negotiating favorable terms can help manage costs.
  • Investing in Technology: Implementing technologies that improve efficiency and reduce waste can be a strategic investment.
  • Diversifying Suppliers: Having multiple suppliers can mitigate risks associated with supply chain disruptions and provide negotiating leverage.
  • Precision Recruiting: Finding exactly the right people who fit your culture and who can take your business forward.

Successfully navigating rising costs requires a comprehensive understanding of the market, proactive financial management, and a commitment to operational excellence.

Written by Fran Webb. If your retail business needs help with candidate attraction, selection, recruitment and induction, contact Fran, KPI's retail recruitment specialist, on FranW@kpir.co.uk or call him on 07539 035 282.