There is no question that surging inflation can be a challenge for most industries around the world, and US retail is no exception. Inflation often leads to higher costs for retailers, forcing them to pay more to restock their inventories and ultimately reducing their profit margins. Furthermore, inflation erodes the purchasing power of consumers, and it brings about numerous challenges when it comes to adjusting prices to match new pressures. While inflation undeniably disrupts markets and industries around the world, the real impact of inflation on US retailers this year may prove hard to determine.
Although consumers have been grappling with persistently high prices for the past two years, CNN suggests there is a glimmer of hope on the horizon. The most recent Consumer Price Index (CPI) report indicates that the annual inflation rate is gradually decreasing. In April, the CPI rose by 4.9% over the 12 months, as reported by the Bureau of Labor Statistics. This represents a slightly slower pace of growth compared to the previous month’s 5%. Moreover, the figure was lower than what economists had initially anticipated, as forecasts expected the growth rate to remain unchanged.
Even so, uncertainty still plagues the economic landscape, and retailers seem to be caught between growing prices and the increasing risk of recession.
Failing to Adapt to the Rise of Online Shopping
Both inflation and the risk of recession can be linked to the recent COVID-19 pandemic and other global challenges. The healthcare crisis has also boosted e-Commerce, prompting numerous businesses to open online stores or risk bankruptcy. However, not all retailers have managed to rise to the challenge and build a good online presence. Bed Bath & Beyond, a once-popular American retailer, has recently filed for Chapter 11 bankruptcy protection. In doing so, the home goods retailer seems to have accepted the fact that it had lost the battle to remain relevant in a world where online shopping thrives.
The company has talked about the numerous challenges it has been facing since the beginning of the year, following a disappointing holiday sales season. It has fought hard to manage its debt while seeking additional financing. After filing for bankruptcy protection, Bed Bath & Beyond has expressed its intention to keep operating its nearly 400 stores under the Bed Bath & Beyond brand and approximately 120 Buy Buy Baby locations during the process. However, the retailer has also announced that it plans to find buyers and that it will eventually close all stores by the end of June.
The fact that one of the most popular US home goods retailers is now planning to close its stores demonstrated the undeniable impact of inflation on American retailers.
Refurbishing Could Prove as Important as e-Commerce
Unlike Bed Bath & Beyond, dollar stores across the US have recently announced their plans to refurbish existing stores and open new locations. According to the Financial Times, these discount retailers have decided to transform their stores because the rising inflation seems to send more and more middle-income consumers their way. Some of the major players in the sector are already embracing this trend by announcing ambitious plans to refurbish a significantly higher number of stores compared to new store openings in 2023. However, the cost of the makeover is expected to be significant, and only time will tell if their plans succeed in attracting more customers.
Dollar General and Dollar Tree, the largest chains in the industry, have recently confirmed their intentions to increase the number of refurbished stores by 11.4% and 25.6%, respectively, compared to 2022. This strategic move demonstrates that the two discount retailers are now committed to providing a better shopping experience for a wider range of customers. Dollar Tree’s CEO, Richard Dreiling, has gone as far as to highlight the impact of the present economic conditions on consumer behavior. He explained that the current economic climate is drawing a larger number of middle-income consumers toward discount retail.
The fact that two of the largest discount retailers have decided to invest in remodeling demonstrates that the impact of inflation remains hard to predict. For some retailers, this can take the form of an increase in the number of higher-income customers.
Adapting to Inflationary Pressures
To balance the impact of inflation, retailers can explore various strategies, such as renegotiating contracts, optimizing inventory management, diversifying sourcing options, adjusting pricing, and remodeling their physical stores in order to attract new customers with improved shopping experiences. The recent healthcare crisis and the e-Commerce boom driven by the pandemic have already demonstrated that the biggest mistake retailers can do when facing hard economic conditions is to say no to change. Only by facing these challenges and transforming them into opportunities can American retailers make sure that their businesses will continue to grow and evolve in 2023 and beyond.
