How To Prepare for and Beat Inflation in Retail in 2024

How To Prepare for and Beat Inflation in Retail in 2024

How To Prepare for and Beat Inflation in Retail in 2024

High inflation as a small business owner — especially in retail — can be a huge source of stress and concern. Every day, we hear news about inflation and its effects on our daily lives, from the cost of groceries to how gas prices are making it harder to get retail items in stores.

But there are ways to prepare for inflation, and it starts with understanding the root causes. Inflation in 2024 stems from several factors: disruptions in the global supply chain causing shortages, increased demand brought about after the pandemic, the ongoing war in Ukraine, and more. Demand is outpacing supply, which causes prices to go up.

Inflation in retail can be especially difficult because you’re dealing with physical products, so increased costs in the supply chain may have a big impact on your revenue. Luckily, we’re here to help. In this article, we cover what inflation is, how it affects you and your customers, and ways to beat inflation in retail.

What Is Inflation and Why Is It Happening in 2024?

At its most basic, inflation is an increase in the cost of goods and services that makes each dollar worth less. The U.S. Federal Reserve, often referred to as the Fed, is the central bank of the United States. One of its many jobs is to work to manage inflation. This year, the Fed has increased the baseline interest rates four times. These rate hikes are meant to fight inflation, but they make it more expensive to borrow money in the meantime.

Additionally, the increased rates are meant to incentivize a pullback in the labor market — which is necessary since there are currently two jobs listed for every potential worker.

Economists commonly measure inflation using the Consumer Price Index (CPI), which has risen year over year. CPI measures price increases and decreases in various sectors of the economy like food, energy, and commodities. 

Higher prices mean your money is worth less. Think of current rental prices: If an office space rental costs $3,000 vs. $2,000, your dollar won’t go as far and you’ll have to shell out more money to provide your business with what it needs.

How Inflation Affects Your Retail Customers

Consumer sentiment reached the lowest point in June 2022 since experts began recording the statistic in 1952. But these feelings are bouncing back, which means consumers are more willing to spend than they were a few years ago.

However, that doesn’t mean that consumer sentiment is high right now since most respondents said they expect a recession to happen in the next year. Plus, we don’t know what this next year will bring. But the fact that Americans are slightly more satisfied with brands shows that there are opportunities to create intense brand loyalty and bring new customers into your community.

How Inflation Affects Retail Business Owners

For the last few years, most small business owners have said inflation is their toughest challenge. And inflation in retail means having to deal with the problem from every angle. You have to handle more expensive shipping costs for your products and supplies, as well as delays in shipments and an increased cost of labor. Even essential items like hangers, furniture, and display racks can be significantly more expensive.

Your choices are to eat these costs or pass them on to your customers — or a combination of the two.

Plus, employees today expect higher wages than a few years ago, as well as benefits, which can make employment costs even higher.

What Can You Do About Inflation?

Experts don’t expect to see lower inflation until possibly 2026. So what’s a small retail business to do? Luckily, there are several moves you can make to try to minimize the impact of inflation on your revenue.

Optimize business operations

Running a business requires flexibility and adapting to changes. The first step you can take to improve your business operations is to think ahead. 

Consider planning many months ahead to help alleviate the headaches of higher prices combined with long delays. You may previously have been able to stock up for your busy season a month or two ahead of time, but that probably won’t work with the current state of affairs. 

For example, planning and buying for the holiday season during the early summer months can help you refresh your inventory on time, as well as spread out the financial burden over a longer period of time. You can also try to re-route your shipments through less expensive ports and ocean lanes.

With higher labor costs, try to do more with fewer employees. This may sound cutthroat or cause employees to groan, but there are ways to go about it without abusing personnel. Use software to automate your business, like inventory management software that can track your inventory automatically. That way, you don’t have to have someone on the clock doing that work by hand. 

You can also take this opportunity to reward your hardest workers with non-monetary benefits and perks to help with retention. Also, make sure to give them promotions and raises when times are good again. 

Create new ways to retain customers

Improving your customer service experience is one of the fastest ways to increase brand loyalty and retention. Make it easier for your customers to get in touch with you by offering multiple avenues, like social media messaging, email, text, and phone — and then be quick to respond to each of them. 

Work on creating tighter customer feedback loops so customers know their voices are heard and their opinions matter. This is particularly important on social media or review sites like Yelp or Google. Don’t just respond to complaints, either — thank customers for leaving you positive reviews, too. 

Also, something as simple as a detailed FAQ section on your website can improve a customer’s experience and reduce the strain of answering questions on you and your employees. 

Additionally, if you do increase your prices, you could consider grandfathering in your previous customers at the original cost. Or create a rewards or loyalty program that keeps loyal customers coming back. 

One other way to keep your customers around is to create a newsletter that builds a community around your products. For example, if you sell local produce, a newsletter could display your current products, include tasty recipes, and highlight a local farmer that you source from. Anything that creates a sense of community can only increase customer retention.

Explore ways to grow your retail business

Just because the economy is struggling at the moment doesn’t mean you shouldn’t try to push for growth if you’re at the right stage in your business journey.  Here are a few methods you can try:

Online sales

If you haven’t ventured into ecommerce, you could consider pivoting a portion of your retail sales to online. Although online shopping was already increasing in popularity, the pandemic has made ecommerce explode: Experts think over one-quarter of all U.S. retail sales will be made online by 2026. And it’s unlikely that this growth will stop. Giving your customers online options can help you reach a bigger audience and offer even more convenience to your already loyal customers.

Social media

Social media is still a big player in growing your retail business, as well. Creating beautiful images and well-written posts tailored to each social media platform, like Twitter, Instagram, Facebook, and even LinkedIn, can have a big impact on your retail sales. The more followers you have, the more legitimate your small business appears. Post relatable and enjoyable content — with a call-to-action pointing to your products — to gain followers organically and consider paid social ads to boost your brand even more. 

A physical location

Although rent inflation is peaking, you may be in a place to open your first brick and mortar store or a new location. If your finances look good, don’t let a bad economy scare you. Being bold can pay off, as we saw during the 2008 financial crisis. When businesses made well-considered but risky moves and achieved positive results, they often performed better than their competition during the years that followed. 

There are other exciting options if a full-time brick and mortar location wouldn’t work for your small business. You could consider partnering with another nearby business that has a physical location to create a short-term pop-up shop to highlight an event or trend. Additionally, you could share rent on a space that has enough room for you and another shop. That way, you can catch foot traffic that you otherwise would miss but not have to pay the full rent.

Be aware of competitors

According to a McKinsey survey, U.S. consumers have swapped retailers for better-priced competitors more in 2022 than since the pandemic started. With the high inflation in retail, brand loyalty isn’t always enough to keep customers around if the price isn’t right. People are looking to save money anywhere they can.

That’s why it’s vital to keep a close eye on how your competitors are pricing and promoting their products. Knowing what other businesses in your industry are doing can help you stay competitive. 

On a similar note, the McKinsey survey also showed that consumers want novel experiences and products (likely fueled by pandemic lockdowns). So it’s important to stay innovative with what you’re offering your customers. And it’s likely to be doubly effective if you can combine value and novelty into one offering.

Keep your finances in check 

Staying on top of your business’s finances is the number one priority as a small business owner dealing with high inflation. If you don’t already, start using accounting software that can automate your bookkeeping and save you precious time. We highlight the best options for accounting software in this article. You want to have a firm understanding of how much money is coming in, going out, and where you’re overspending so you can adjust as needed.

Get your costs down as far as you can. You can try negotiating deals with your suppliers to secure a better price. If this doesn’t work but you have been a good customer, you could search for new suppliers. It’s also a good idea to look into your business credit score to make sure it’s high enough — this is a great way to prove that you are reliable and get the best terms with suppliers. For help with that process, check out Nav’s guide for how to establish business credit

Finally, consider increasing your retail prices if needed. No one likes raising prices — not consumers and not business owners. Businesses know it can turn customers off. But with inflation in 2022 where it is, it might be a necessary step to keep your revenue steady. 

However, before you increase your prices, think through it strategically. First, make sure you’re raising costs transparently. Let your customers know up-front so they aren’t blindsided by the extra cost. Also, try not to raise prices on everything all at once. Instead, you could pick products that are less visible, which increases profits but causes the least damage to your brand image. 

If you are adamant about avoiding increasing your prices, you can instead reduce the number of promotions you run. Although these can be a powerful marketing tool, discounts also reduce the amount you bring in in sales. Limiting these may increase your revenue enough to balance your books.

Turn to Nav for Financing

We get it — reducing costs and renegotiating contracts isn’t always enough to stabilize your business finances during a period of such high inflation. That’s where financing can help. If you’re looking to add small business loans or business credit cards to your toolbox to help your business beat inflation, Nav makes it easy. Sign up for Nav, include a few business details, and we do the work connecting you with the options you’re most likely to qualify for. 

This article was originally written on October 5, 2022 and updated on December 13, 2023.

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