Challenges Facing Retailers in 2012

There are a number of significant challenges facing retailers in today’s environment. This blog post will focus on a few of those challenges as retailers plan for the remainder of 2012:
  • Aligning business operations with the growth of e-commerce
  • Higher energy costs and its effect on in-store foot traffic
  • Perfecting the supply-chain management processes
Growth of e-Commerce

Although not a new trend, but an ever-growing one, consumers are becoming more and more comfortable shopping on the internet. Shopping online often provides special incentives like discounted pricing, deals not offered in brick & mortar stores, no sales taxes on purchases and free shipping in a lot of cases. These incentives, coupled with the rising cost of gasoline, can make shopping online more cost effective than heading to a retail store. With online sales continuing to grow, retailers need to remain focused on developing or increasing their share of internet sales. In addition, social networking websites can have a big impact on sales, and retailers must ensure that they are leveraging these websites to drive closer relationships with their consumers.

Rising Energy Costs

Rising gasoline prices may become a major threat to retailers for the remainder of 2012, evidenced by the especially sharp rise in online shopping during the first couple of months in 2012. Incidentally, this rise coincided with an unusual winter spike in gas prices. One of the obvious upsides of online shopping is that it saves the consumer from having to make a trip to the store, which saves on fuel.  Since a gallon of gas now costs in excess of $4 in some states and could hit $5 soon, there is a strong and growing incentive for consumers to shop from home.  Also, the added cost of gas is reducing consumers’ disposable income, which will likely have a negative impact on retail sales at some point later this year.

Supply Chain Issues

In addition, retailers are continually striving to manage inventory levels to minimize the costs of sourcing merchandise.  In this tenuous retail environment, retailers need to balance controlling spending, reducing expenses, and ensuring the investment in inventory is productive without negatively impacting sales. As inventory is the single largest investment a retailer makes, any reduction here is very beneficial to the bottom line and can also improve cash flow. However, reducing inventory is not without risks as stores can run out of key styles and impact sales and gross margins.

In conclusion, retailers need to adapt to the ever-growing trend towards online shopping. This is particularly true at a time when rising gas prices encourage consumers to save money by shopping on-line, thus increasing the cost of stocking inventory in stores.

What additional challenges do you see impacting retailers in 2012?