Non-food retail, along with everyone, found itself in a “new reality.” The situation continues to change rapidly, and it is too early to talk about the finally established paradigm of the existence of the industry. But certain trends have developed.
Before talking about prospects, you need to try to assess the current situation. What does the industry face today? Retail has been changing for the past two years under the influence of the pandemic. We were rapidly rebuilding, solving problems with logistics, demand forecasts and delivery organization. There have been truly tectonic shifts, primarily related to a change in buyer’s thinking. Together with the macroeconomic situation, this new thinking led to the growth of e-commerce and large-scale digitalization. Now there has been another coup, but, despite another source of the crisis, the experience of working during the pandemic, of course, will come in handy.
Some of the problems, one might say, smoothly flowed into the “new world”: this is an increase in prices, a violation of supply chains, and a decrease in the number of suppliers. Now these factors have intensified, for example, only Asian suppliers remained, volatility in the foreign exchange market has intensified. In the non-food retail segment, we observe the following.
- Prices are rising, and networks, fighting for the client, delay the moment of their rise – they slow down the acceptance of new prices from suppliers. This is logical, because for many, keeping low price is the main way to maintain traffic. Of course, such a strategy leads to the loss of a certain part of the margin, but, at the same time, this is a kind of investment in dragging traffic from competitors.
- It is infinitely impossible to keep the price, it will increase, so in order to maintain turnover, it will be necessary to revise the entire commodity matrix.
- The surge in excitement for some goods is ending. Already, there has been a shift in demand from higher segments to lower ones, buyers are entering austerity. People are disoriented and so price sensitive that they are ready to change places of familiar purchases, compare prices, focus on the discounter segment.
- Foreign companies refuse to deliver goods to Russia, followed by “collapse” or a significant reduction in networks.
- Supermarkets are seriously cutting non-food lines on their shelves.
- The main production of non-food goods on the Russian market is Chinese. We are talking about 70-80% of the assortment matrix. China is still outside the sanctions discourse, but supply chains have been disrupted. The delivery time for goods has almost doubled. It has hit stocks hard.
- Due to difficulties with logistics and changes in the dollar exchange rate, the cost of goods increased.
- Raw materials prices have increased, as well as production period in China, so the existing tendency for sellers to start their own brands has slowed down significantly.
The transition to a new reality takes time, resources and tools. Time, as we understand, is limited by the amount of accumulated resources. Tools can slow processes because they were originally created for “another world,” and they will probably have to be replaced to maintain efficiency. Some development trends that werenoticed by different experts last year almost ceased to be relevant.
The reconquest of stores, the creation of additional comfort for customers, and the interest in innovative technologies have left the discourse indefinitely. In a “no commodity” situation, they look and, in fact, are an excess. But some “coronacrisis” trends remain relevant. This is a reduction in the size of large stores (areas are needed only for the most demanded goods), a focus on omnichannel sales (ordering goods online and receiving them at a convenient point of delivery) and, of course, a serious development of online trading and delivery.
If we talk about our own Russian production: it is poorly developed, there is no question of quickly creating a wide range of goods. At the same time, credit organizations suspend the issuance of short-term loans – this affects negatively the intensity of development. Will the state subsidize loans to businesses if it is not about agriculture or essential products? I am afraid that this is not yet predicted. We expect Chinese imports to rise. In the low and middle price segments, quality will not drop – there was already a focus for Chinese goods. In the high segment, unfortunately, we should expect its decline.
The stage of dramatic changes has come for everyone, both for buyers, and those who fill the counter. There was a serious channel problem that forces the non-food segment to reduce the assortment and focus on turnover. The main task of retail is always to increase the buyer’s check. If you bet exclusively on class A in turnover, then the matrix of goods will be too narrow. With a decrease in the assortment offer, the contingent of buyers is also reduced. And a large assortment, on the contrary, is low turnover. In which the retailer will simply destroy itself with expenses arising from the large format of stores, high rents, many sellers and similar costs of maintaining an offline store. The retailer should strive, on the one hand, to maximize the contingent of buyers, on the other, to try to make it profitable.
Today, there is only one way out of such a situation – this is a combination of online trading with own offline stores, which can be used as points of delivery. Reorienting to online sales will help to be present even in small cities, in which offline points will be closed due to low turnover. With online sales, you can make a lower mark-up – you do not need to maintain stores, goods can be 30-40% cheaper than if they were on the shelves. Retailers and suppliers should pay attention to the following points when building a strategy.
Optimizing the assortment matrix. Reducing costs, you need to narrow the formats of physical stores, leaving only the main product on the shelf. At the same time, you need to try to save the assortment (more than you can physically allow in the store), taking this wide part online.
Channel diversification. Of course, you need to develop online, but it has low margins, and offline has too high costs. We strive to combine: a collaboration of our own stores and online trading through our sites and marketplaces will look close to ideal.
Working with suppliers. Due to the increase in prices for raw materials and increase in production terms, own brands no longer look competitive, the price of their own imports may now be higher. You need to learn to work with suppliers again, some of them even have annual stocks of goods. You can use them correctly, even if they are outside the existing matrix. This resource will help in conducting promotions and events to preserve the buyer, who is interested in price, quality assortment, and the ability to remain in the usual consumption paradigm, where promotions and discounts played the role of a driver.
For suppliers, this is not only an opportunity to sell certain stocks, but also a chance to announce themselves even in such a crisis situation: by forming conceptual proposals for retailers, you can show your awareness, customer focus, vision (stocks were formed at lower prices in advance).
Access to marketplaces. Goods on marketplaces have a serious drawback – long delivery times to the regions for a wide assortment range. If a regional non-food chain with its own warehouses and stores enters the marketplace, it will receive a competitive advantage – the deadlines can be significantly reduced. Working on the FBS model with shipment from its warehouse and with its couriers is now the best format for working in this sales channel.
Human resources. It is impossible to qualitatively advance through the online channel without having a professional resource. It is necessary to recruit or develop existing IT personnel and specialists for Internet promotion: a good engine is needed for the site, SEO specialists are needed to be in the first lines of delivery without unnecessary costs, Internet marketers and SMM specialists will help you master marketplaces and current social networks.
By Valentin Zybalov, Co-founder and CEO of Moulin Villa