Friday, June 21, 2024

Retail sector grapples with shifting consumer behavior

It is normal for consumers to take a shopping break after the winter holidays, leading to lower retail volumes during the first quarter of the new year. This year, however, shoppers are weathering more than just the typical post-Christmas budget crunch. 

Folks have been hit hard by inflation, and the rising cost of everyday necessities — coupled with fears surrounding a potential recession — has led to higher-than-expected levels of hesitation around spending. 

“We are seeing an expected steady decline in last-mile shipments from the peak month of December,” project44 data analyst Jenna Slagle said. “A volume drop is typical to see after the peak holiday season, however the Federal Reserve is reporting lower overall consumer spending, which can be contributing to this decrease.”

Typically, volumes follow a familiar pattern that includes spiking during the holiday season and plummeting in the new year. While current trends are following the same basic pattern, it is worth noting that this past peak season didn’t really “peak” the way previous seasons have.

Despite this lower summit — which can be attributed to falling consumer demand — volumes have nosedived in the first months of 2023. project44 visualized this shift by graphing last-mile volume fluctuations compared to peak season.

Most of the time, March brings some reprieve from the post-holiday demand slump. This year, consumers appear to be less apt to resume their normal spending habits.

“Generally, February is the lowest volume month of the year, but with recent mass layoffs, bank failures, high inflation rates and a low consumer confidence level in the current economy, I expect to continue seeing lower volume for the next few months until confidence is restored,” Slagle said.

Retailers need to understand how consumers operate in order to succeed in any market. In a stressed economic environment, shoppers are less likely to pick up optional finds or invest in big ticket items. 

“There’s a complex set of shifts in consumer behavior: people choosing food and essentials over durable goods, higher income customers shopping more at less expensive grocery stores and grocery customers in general buying more private label than name-brand food,” FreightWaves’ JP Hampstead reported earlier this month. “Each of those three trends, it seems, is being driven by inflationary pressures on consumer wallets: Their dollars just aren’t going as far, so they’re making thriftier choices.”

This does not mean that people stop shopping, but it does mean that companies should invest more time and effort into making profits from the things people tend to purchase in any economy, like basic household staples.

“Consumers are starting to shop the way they shop in a recession environment in the retail sector,” Slagle said. “As a result, many retailers are exploring subscription models to promote customer loyalty, as well as shifting focus to everyday inventory rather than inventory considered discretionary.”

Subscription models have become popular across a variety of different stores, including household names like Walmart and Kroger. Specialty stores that do not sell many everyday items — including Lululemon and Best Buy — have also rolled out robust loyalty programs to keep shoppers engaged. While these companies primarily focus on “discretionary” goods, they tend to have enthusiastic customer bases, and these programs may persuade those folks to keep shopping. 

Retailers will benefit from getting creative, but most companies are still feeling the sting of falling consumer demand and high inventory prices. When sales revenue falls, retailers start looking to recoup lost money elsewhere. Optimizing transit costs via the use of visibility software is a natural place to start.

Recent FreightWaves research found that, on average, a retailer with a 25% gross margin may have freight costs that are the equivalent of 2.25% of revenue. This research was focused on large companies with a strong brick-and-mortar presence. For retailers that primarily operate in the e-commerce space, this burden can be even higher. 

Companies garnering 50% or more of their revenue from an online channel end up paying twice as much in logistics costs as companies with a heavier emphasis on in-store sales, according to research from Gartner.

It is time for retailers, especially those with a strong e-commerce presence, to turn their attention toward optimizing current transportation operations, with an emphasis on last-mile delivery due to its outsized effect on the overall budget.

“A 1% reduction in freight cost could save $225 for every $1 million in sales. That scales quickly when putting that in the context of retailers that do many billions of dollars in sales annually,” FreightWaves noted in a recent white paper.

It is clear that reducing freight cost pays off, but some shippers may feel stuck in their current situations due to the sheer number of solutions on the market promising to drive down costs. There are a lot of products to wade through, but at the end of the day, shippers really only need two things to up their operational efficiency: good data and proactive partners. 

project44 provides a suite of products tailored specifically toward retailers, helping them get costs under control, reduce excess inventory and exceed customer expectations. 

The company’s API-first approach allows retailers to fully automate shipments across various transportation types and connect with carriers seamlessly. Thanks to this innovative approach, project44 is able to provide customers with accurate, real-time transportation data — including delivery ETAs — in a single dashboard. 

project44’s Last Mile solution intelligently combines predictive supply chain data with real-time visibility to power exceptional customer experiences and uphold brand expectations. That’s why retailers like Walmart, Neiman Marcus, Helix and thousands more trust project44 to power exceptional experiences for their customers.

Many retailers find themselves cobbling together multiple solutions to accommodate different functions — from creating branded tracking experiences to exception resolution and carrier performance analysis — but project44 offers everything companies need to manage their transportation network, including last mile, in one spot. 

Click here to learn more about how project44 can help retailers navigate today’s changing market.

The post Retail sector grapples with shifting consumer behavior appeared first on FreightWaves.

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