One topic has dominated the recent business and financial news above all others. There’s already an understandable sense of exhaustion creeping in whenever anyone mentions the ‘T’ word.
What happens next with Donald Trump’s controversial tariff agenda is anyone’s guess. But one thing’s for certain – a global trade war is not good news for retailers. While it’s true that tariffs on the US side will most directly affect UK exporters, with the higher prices paid by US companies and, ultimately consumers, damage to GDP, lower consumer confidence, disrupted supply chains and prospective retaliatory tariffs all pose new risks to retailers on this side of the Atlantic. As if the last few years hadn’t been tough enough already.
The sum effect is yet more inflationary pressures on a sector that has seen pre-tax profit margins dip below 5% since the start of the decade. Any further rise in input costs will almost certainly necessitate further price rises. But with consumer confidence already low, price hikes could prove self-defeating by suppressing spending even further. Retailers will find themselves under pressure to limit price increases while still protecting margins. That means cost cutting.
There has, of course, been plenty of that already in the past five years. So what else can you do to cut further and smarter without threatening the stability of your business?
Get to grips with which costs are rising and why
If the UK ends up launching retaliatory tariffs against the US, and your business imports goods from there, then your cost drivers will be simple and obvious. But that won’t apply to most UK retailers. Tariff-driven increases will be much more indirect and complex. The UK imports a lot of oil from the US, so transportation costs might rise. A lot of UK retailers import goods from China, which has been hit by punishing 125% tariffs. Chinese manufacturers might have no choice but to increase prices to deal with the cost increases the trade war causes for them.
This is a good time to get serious about financial data analytics, and get specific about pinpointing where higher costs are appearing. Robust and accurate data collection will allow you to employ predictive analytics to forecast future cost trends and make carefully targeted adjustments, rather than having to rely on broad-brush responses that affect the whole of your business.
Maximise efficiencies across your business
One strategy you can apply in a broad-brush way – and start doing immediately – is looking for efficiency gains. The key here is not to just limit yourself to the usual suspects for cost cutting, staffing levels and how much stock you hold at a time etc. If you’ve been working on reducing your costs previously, you’re likely to have little further room for manoeuvre here.
The point of taking a 360-degree view of efficiency is that every little helps. Lots of 1% gains can add up to a significant saving. So don’t take it all on yourself. Talk to your staff, provide training if necessary to help them become more attuned to the importance of doing things more efficiently, and what it looks like. Hold regular meetings, listen to suggestions, run small trials and then build on what works. The flip side of this is that working more efficiently usually means working smarter and with better outputs. Prioritising operational excellence helps you keep performance levels high while effectively controlling expenses.
Don’t be afraid of investing in the right technologies
Thinking about investing money in new technology in the context of cost-cutting can feel counter-productive. But spending a little to save even more is good business sense. Whether it’s self-service checkouts to free up staff capabilities and increase sales throughput, or the latest advanced data analytics and AI tools to transform your business intelligence and optimise your processes, technology can provide the answer to some of the toughest business challenges.
The key is to be absolutely certain about the ROI you will get. If your aim is to cut costs and protect margins, then you need to be sure any solution will end up saving more money than you spend on it (preferably by a healthy margin). That starts with being very clear about where your cost-saving opportunities lie, and where to apply tech in support. Be rigorous in assessing the options available, and wherever possible run tests to gather evidence about whether the product actually delivers what you want it to.