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Move over avocado toast, the new luxury item is… an egg? The price of an egg doubling or tripling at the moment is due to a shortage as well as supply chain issues, including the rising cost of feed, packaging, and labor costs. In short, the almighty egg is a prominent example of something both consumers and retailers will be battling in 2023: inflation.
According to Moody’s Analytics, via CNN, the average household spent $371 more on goods and services compared to a year ago. That’s a large increase in spending that far outpaces any rise in wages, which is set to hamper any “retail recovery” after a relatively mild holiday shopping season.
Apparel retailers and brands, for example, are feeling the squeeze of higher costs while seeing consumer confidence weaken at the start of the new year. And for many, the next steps to mitigate lower revenue aren’t exactly clear. Should brands lower or increase prices? Should they cut costs in their production of products? Or are layoffs the answer to stem the recession tides?
Perhaps the moves to protect against a recession’s impact doesn’t have to be so dramatic. Let’s take a look at three things that retail brands can do to spend less and even increase revenue during an economic downturn.
1. Increase Prices for Your Most “Recession-Proof” Customers
Price increases across all your products tend to have an uneven effect for your customers, affecting those who perhaps can’t afford even a small increase in ticket price. At the same time, a general price increase is very visible, and in today’s social media world where comparative shopping can be done in seconds, your consumers can be turned off by your brand trying to “sneak” more expensive prices for items they already know and love.
Instead, brands may be able to keep their customers appeased by increasing prices on just their most expensive products. Because these items are mostly targeted by wealthy customers who have less sensitivity to recessions and inflation, price increases here can help bolster your bottom line while leaving your lower-costs product prices alone.
In the last few months, many luxury brands have been doing just that, raising prices by 6-7% on the lower end, and up to 25% in some markets. Turns out, they haven’t seen much resistance from their clientele, and this strategy can help your brand bring in more revenue without expanding price increases to the rest of your customers. As McKinsey put it:
Go granular with pricing and promotion and tailor value delivery to consumers. Instead of implementing broad price increases that may erode customer trust, retailers can tailor their inflationary price response by customer and product segment, considering both margin performance and consumers’ willingness to pay. Raising prices is unpleasant for both consumers and retailers. Retailers that take a surgical approach are more likely to emerge with profitability and consumer relationships intact.
2. Sell More “Smaller Luxuries”
Heading into the holiday shopping season, the VP of Strategy at Aptos had this to say:
“With inflation still having an impact and consumer budgets shrinking this holiday season, people will be looking for smaller luxuries and gifts that still deliver feel-good quality.” – Nikki Baird
This is an example of the so-called “Lipstick Index,” coined by Leonard Lauder (of Estee Lauder, of course), who posited that during bear markets or recessions, people tend to treat themselves to smaller luxuries (like lipstick) since many more expensive items can feel out of reach.
And in fact, the Lipstick Index is indeed back as of late last year due to inflation, with lipstick and other makeup items seeing higher sales even when other retail products were seeing a downturn. These smaller luxuries were a bright spot among the tepid holiday shopping season.
Your brand should push smaller ticket items in order for the volume of sales to make up for revenue lost from pricier products. Again, let your CRM data provide the actionable insights as to which are popular enough to meet that “small luxury” threshold.
Also consider bundling multiple “small luxury” products together. Bundling has been shown to increase revenue, and marketing a “treat yourself” type of bundle can move multiple products to your core audience who are looking for treats that don’t break the bank.
3. Lean into Virtual Clienteling & Personalization
When retail brands need to tighten their belts during economic downturns, your team has to keep marketing to drive business but find ways to be more effective with less resources. Be it due to cutting staff, cutting hours, or simply cutting budget; brands need to be efficient with their spend.
Again, turning to a quote from the VP of Strategy at Aptos:
“One way retailers can capture demand and help customers do more with less is through personalization. Customers will value creative and inexpensive ways to help pack a punch with presents, so retailers who can pivot to more personalized offers should definitely emphasize it.” – Nikki Baird
In essence, personalizing your marketing to your core clients is one of the best ways to see great ROI during this period of inflation. To do so, virtual or remote clienteling methods can help your business do this right.
For example, a virtual styling session with a customer is a way to offer that personalized experience, but without the additional cost of doing it in-store. This way, your stylist can do back to back to back sessions, helping more customers in a day than otherwise possible. This also is a low-barrier for your clients, being able to receive personalized help from the comfort of their home.
There’s nothing we can do about inflation, but there are many moves to make that can keep driving relationships and sales during any downturn. Request a call and see what Endear can do for your brand today.