Inflation offers an ‘excellent opportunity’ to reset promotional strategies: KPMG

Retailers can turn the current economic challenges into an opportunity to refocus their communications with customers, KPMG’s Anson Bailey says.

The current trend of global inflation, coupled with the long-term effects of the COVID-19 pandemic, is profoundly impacting how consumers live and what they value. 

In this current environment, understanding how consumer needs have shifted and using promotion strategies to manage today’s inflationary pressures is critical, says Anson Bailey, KPMG’s Head of Consumer & Retail for the ASPAC region. “As new behaviours emerge post-pandemic, retailers must prepare for the potential top-line impact of demand shifts,” he explains.

Speaking with Retail Asia, Bailey shared his insights on the trends and challenges surrounding the retail industry, how global inflation is going to affect retail, as well as how retailers can address rising consumer and stakeholder demand for ESG accountability.

What are some of the main challenges the Asia retail industry has faced in the past year? What can they take away from these challenges?

The impacts of COVID have been a part of larger overall challenges facing the industry, including supply chain issues, consumer confidence, and a lack of cross-border travel. Looking ahead, we expect China’s rapid reopening to provide a major fillip to Asia’s pandemic-battered retail sector and hotel industry.

As this occurs, it is important to remember how the industry has transformed since the pandemic. COVID forced businesses to develop innovative solutions to make their operations, products and services more accessible. These new solutions have provided new growth opportunities for retailers, and we expect this innovation to continue to accelerate in the post-pandemic environment.

Successful retailers are reimagining their offerings to attract shoppers both online and in-store, creating an integrated customer experience across multiple channels. The present environment offers opportunities for retailers and brands to take stock of how they are engaging with their customers, rethink their purpose, and embrace the new reality.

Recent news of global inflation has negatively impacted business performance in certain sectors. How should the retail industry take stock of this? 

Inflation is denting consumers’ purchasing power, despite gains in nominal income due to a strong labour market. For example, even though nominal average weekly earnings have gone up by 7.5% since December 2020, real earnings have contracted by 4.7%. This is likely to weigh on consumer demand and the volume of retail sales.

Inflation in fashion has been caused by transportation bottlenecks, material shortages, rising shipping costs, and straining supply and demand. With COVID-caused supply and demand constraints easing, shoppers are not yet accustomed to price jumps in everything from bags to shoes.

As a result, retailers need to rethink their commercial positioning and review marketing and packaging strategies, including the potential use of non-uniform and, in some cases, non-price mechanisms. Increasing the number of promoted products is a reflexive response to inflation, but it’s not the right response for building sustainable sales or longer-term loyalty. Inflationary times offer an excellent opportunity to reset promotional strategies to save money and margin. 

Retailers can increase sales and seize opportunities with a promotional pricing strategy. Increased promotional activity has a knock-on effect vs pricing position in high-low strategies and erodes overall value perception, creating a vicious circle of more promotions equalling poorer value.

Some companies have responded by announcing an increase in prices across product categories. Companies can manage pricing margins responsibly and profitably during inflation. Determining how and where new opportunities exist can help companies control inflation, drive growth, and remain profitable.

Considerations for ESG and sustainability programmes are becoming more in demand recently. What should retailers do to commit to sustainability goals in the long term?

Retailers need to think very hard about ESG because it is now more widely impacting their businesses. Previously, ESG has very much been focused on environmental considerations but more recently it has begun to encompass the social and governance aspects increasingly.

Against this backdrop, it is far better for retailers to take the “carrot” option and embed ESG into their culture rather than wait to be beaten by the ESG “stick” and risk their future relevance.

Retailers should take steps to integrate sustainability into the core of their business. This requires a review of all aspects of their operations, including raw materials, production, supply chain, and packaging, amongst others. Today’s consumers and investors are expecting retailers to have a comprehensive ESG strategy that encompasses all of these aspects.

What trends should retailers watch in 2023? 

In 2023, omnichannel will become ‘business as usual.’ Online shopping will continue to thrive but is yet to replace brick and mortar. Customers expect a seamless experience amongst all channels: in-store, e-commerce, and social commerce. Savvy retailers are also adding digital elements to their in-store experience. Despite their struggles, the resilience of malls persists with foot traffic recovering post-pandemic, along with an additional emphasis on the shopper experience for brick and mortar in general. 

In addition, ‘shoppertainment’ will continue to stimulate new brand discovery and purchase. Shoppers are expected to not just be sold to, but to be entertained. At the same time, live-to-stream, short entertaining videos are increasingly influencing consumers’ awareness and choice of products. A recent Nielsen study found that 82% of consumers in Southeast Asia discover new brands to buy, and 55% made unexpected purchases through short, amusing videos.

Web 3.0 is likely to continue its growth trend as more retailers find new opportunities to connect their virtual base with real-life experiences. And circular retail, which started as a shopper-conscious movement to help save the environment will likely gain more spotlight as consumers are more value-conscious and sustainability conscious. A recent example is Carousell and IKEA Singapore, who collaborated to launch a temporary second-hand showroom and reward programme. 

What are you looking for in this year’s Retail Asia Awards entries?

We are looking for companies that are providing innovative customer services, along with new immersive shopping experiences, new product developments, and the use of new technologies like AI. Further, we are looking for companies with a strong focus on their people, providing extraordinary customer service, and demonstrating a strong focus on the planet with forward-thinking actions around ESG and sustainability.