86 Careful costings Mortgage rates are soaring, energy bills on the rise and the cost of the weekly shop recently rose at its fastest rate in a decade. The cost of living crisis is on everyone’s minds – retailers and shoppers alike and the devastating humanitarian crisis unfolding in Ukraine makes for a bleak 2022 outlook. Helen Dickinson, Chief Executive of the British Retail Consortium (BRC) said in a statement, “retail faces significant headwinds in 2022, as consumer spending is held back by rising inflation, increasing energy bills, and April’s national insurance hike”. Martin McTague, chair of the Federation of Small Businesses (FSB) said in April, “It’s been decades since we’ve seen input costs surging at this kind of unmanageable rate. The discrepancy between the rise in costs for firms and consumer prices gives you some sense of how small business owners are taking the hit directly – in a lot of cases, reducing their take home pay or scaling back investment and expansion rather than passing on higher costs to customers. “But a lot of small businesses are left with no choice but to raise prices as their overheads spiral: the cost-of-living crisis starts with a cost of doing business crisis. “We’re encouraging all firms to check what support is out there, including at the local level where some Covid support grants remain unspent.” As the second quarter commences, economists, charities and the government are all grappling with the causes and the solutions. Yet despite the doom and gloom businesses can take proactive action to mitigate some of the pressures. Knowledge is power, there’s no hiding from these major challenges but if business owners have a comprehensive understanding of their figures right now, coupled with insight of how their customers are feeling and behaving they’ll be in a much better position to weather this storm. PROFIT MARGINS Retailers should be double and triple checking their profit margins, especially if they haven’t reviewed them in a while. Knowing, to the penny, how much it costs right now to buy or create their products is vital. They must check every invoice, as price increases have taken place across most items and services. Going through each invoice to see where any costs have risen - knowing the exact profit for each product will enable more control. With that knowledge comes power - it might be that retailers decide to discontinue a product because it just isn’t viable anymore and focus on the more stable and profitable ones. PRICING REVIEWS The British Retail Consortium is clear at that moment that pretty much everybody is going to have to put their prices up. The question is how. If increasing prices isn’t a straightforward option, business owners should look if they can trim the cost of their product without compromising brand or beliefs. Small businesses should check their stock levels - cash tied up in excess stock at times like these is an area of their business to tackle. There are many ways to cut this cake but I’d advise being transparent and even talking to your customers first. Incremental price Catherine Erdly, owner of The Resilient Retail Club discusses the rising costs we’re facing and how to manage pricing and profitability
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