55% of retailers plan to raise prices in 2022 to boost revenue amid an inflationary environment and ongoing supply chain issues, according to BDO’s 2022 Retail CFO Outlook Survey. “Retailers are bouncing back from pandemic lows, but their optimism remains tempered against the anxiety of a changing business model of offline and online access that consumers demand,” the report stated.
Higher costs, like paying employees more, are being passed onto consumers, and they’re not going to like it.
The surveyed executives cited supply chain disruption as the number one risk to the business. Rising transportation costs ranked as the top supply chain threat, cited by 52% of executives, followed by supplier risks or delays (38%), supply shortage (37%), and higher customer expectations (34%). These factors translate to rising prices and product shortages, and, in response, retailers are mainly passing on these costs to consumers, according to BDO.
Other key takeaways from the report are below.
- Counting cash: Forty-five percent of retailers said they have less than three months’ cash on hand and 43% said they want to keep more cash on hand to mitigate future turmoil.
- Buy American: Nearly half of retailers plan to source the majority of their products from the United States in 2022.
- Fears of falling behind: Thirty-eight percent of retail CFOs said falling behind on digital adoption poses a significant risk to their business.
- Debt: Debt amounts varied by company size. Retailers with revenue under $500 million took on more debt than their larger peers as their path to recovery proved harder. However, in 2022, companies of all sizes plan to take on more debt as they continue to invest in supply chain management, refine ordering models like BOPIS, and improve in-store and e-commerce customer experiences.
- Revenue: Overall, 26% of retailers expect revenue decreases in 2022, down from 44% that expected a decline at the beginning of 2021.
So consumers are being hit with a one-two punch of price increases; brands and now retailers. What will the effect be? I believe eventually consumers will pull back their spending. We’re already starting to read about the possibility of a recession, and many have forecasted a huge “pop” in the housing market.
Will brands suffer? Yes, some without substantial brand equity, but others will substitute increased revenue with higher prices. I believe one market that’s due for a colossal reckoning is the auto market. Consumers are paying MSRP or above on too many models, and demand can only last as wallets are empty.
So far, consumers have been mostly immune to price increases, but with government surplus all but over and wallets emptying, that’s going to change. Recent data signals that consumers are beginning to cut back on some items that have gone up the most in price. “You’re starting to see a decline in spending across several categories where prices have increased significantly,” Omair Sharif, founder of Inflation Insights, told Yahoo Finance.
Over the last six months, spending on beef products, in real terms after inflation-adjusted, have gone down over 10% in just the last six months alone. People are reacting to higher prices and cutting back on items where prices have gone up, and we can see that in the data.
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Strategically, inflation will put a squeeze on some of the significant sustainability commitments brands have made over the past two years. In this new context, many clients will be reviewing their marketing strategies to determine if they are still relevant.
For many brands, inflation will be a considerable challenge as they struggle to hold onto their market share.