A new survey among Swedish consumers is an indicator of the impact falling confidence is having across Europe. As EY predicted earlier in the year, rising costs due to inflation are forcing consumers to focus on necessary purchases mainly food, as opposed to high ticket items and non-essentials including TVs and furniture. Retail sales in durables have fallen by 9% from a year earlier. Prospects for Black Friday for these sectors are therefore poor.
According to Statistics Sweden, Swedish retail sales fell 0.4% in July, the fourth monthly decline in a row, which amounts to a 5.1% fall so far this year and the biggest since 1993.
No area of retail is immune. As so often in a near-recession, the middle market suffers, and in food this includes on line grocer Ocado whose shares were recently downgraded by bank HSBC from Hold to Reduce, which sent the price down 8%. The simple fact is, while Ocado is putting on more customers, their basket sizes are shrinking by 6% in the last quarter. Like all other retailers, Ocado is also seeing a squeeze on its operational costs due to higher energy bills, higher costs on imported goods following the sterling crash, such that even the two discounters Aldi and Lidl are putting up their prices at a faster rate than their competitors.
Humans can’t do it all
The only good news is that the crisis may accelerate investment in strategies and technologies that help retailers get a better understanding of what their customers buy and what they might be about to buy. Adoption of personalisation has been patchy at best, not least because of the initial cost and the hurdle of trying to get multiple departments to work together from a single set of data.
However, it is worth pointing out that many retailers already have many of the building blocks needed, not least the data. The adoption of AI in areas that reap the biggest rewards will help them make sense of the data and start to dramatically improve inventory management across ranging and assortment, replenishment, markdowns and promotions.
Too much trust is still being put into human teams working from spreadsheets, and while they are obviously doing their best, availability of key items at the shelf of less than 70% in some cases is simply throwing money and customers away. During Covid, consumers were prepared to put up with shortages and pick alternatives; not this time. They are shopping at the top of their game, even with reduced budgets.