The US economy is closely tied with the Indian economy. Whenever something happens in the US, it sends ripples throughout the globe. Especially the developing and under developed countries. Inflation in the US have reached a record high since 1981 at 9.1% This have started to seep into the cosumer buying behavior.
What is retail inflation?
Retail inflation is the rising prices of retail goods and services. It is an economic indicator of the average change in prices over time. In the US, CPI or the Consumer Price Index is often used for tracking inflation.
The CPI covers 21 sectors including retail.
In an inflationary environment, the money earned and saved by consumers will have less value than it did before.
While inflation is bad, it won’t affect everyone in the same way. People who lives on a minimum wage will suffer more.
Why inflation in bad for retail?
The global retail industry is a web of various parties like manufacturers, industrialists, stores, farms, spinners, weavers, traders, etc. In todays economy, there are hardly any clothes that are made in their same region. All the clothes in the world are either partially or fully imported.
Since 2020, the pandemic have send shock waves through the retail supply chain. We saw massive cargo ships getting stuck at canals, and goods getting stuck at airports and sea ports.
At the same time, demand has not decreased. People continued to consume goods. Thanks to online shopping. Technology have enabled people to buy things at impulse.
90% of the world’s goods are transported by ship. Driven months of backlogs, the retail supply chain have become a mess. Especially the Chinese goods.
How Inflation Affects Retailers?
Higher production costs can hurt businesses. When costs increases, retailers are forced to take a hit on margin or pass along the price hike to their customers. Even in both the cases, the chances of customers getting their sentiments away from the brand are high.
Due to inflation, prices will increase and the purchasing power of the consumer decreases. It weakens the demand for products. There will be huge piles of inventories these months.
What Retailers Can Do?
When retailers try to increase the prices of their products, it hurts the consumer sentiments. Experts suggest that by increasing the prices of all the products and giving concrete reason to customers, can improve their loyalty and sentiments towards the brand.
Another way is to increase the prices of products that are consumed in less quantity and by affluent people. Affluent people do not necessarily get tensed about the prices. If it is under their budget, price increase do no matter.
What is Ahead for Retailers?
Retailers can expect a decrease in demands but, there will be higher demands for casual attires and wedding dresses as people have started to return to their offices and started gathering for weddings. So it will be a better idea for retailers to understand the necessary demands of the moment and bank on them. Retailers can also optimize their efficiency in terms of productions, resourcefulness and operations to save costs.
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