Inflation remains a huge problem for consumers reticent to spend and retailers struggling to stay afloat. While the rate of inflation is in slight decline, it is still more than three times the BoE’s 2% target. Shop prices rose at an annual rate of 6.2% in September, down from 6.9% in August according to figures published by the British Retail Consortium.
Inflation rates may be dropping, but this has no impact on the average consumer. Prices on the shelf are increasing despite the best efforts of retailers – and the public is responding. 70% of households now express significant worry about food and drink inflation, and many have switched their entire shop to deep discounters in the face of continual price rises.
Joining the dots of big data
Inflation affects every aspect of a business. Employee wages are growing, suppliers’ costs are increasing, supply chain and premises expenses have maintained significant highs. Retailers are on a knife-edge, balancing significant expenses against the demands of a public hungry for lower prices while still looking to receive a prime customer experience. The choice is to either fight every fire individually, using the time, effort and expense of high-level employees to solve tiny problems piecemeal, or to find a modern retailing solution which allows the internal focus to stay on strategy.
Algorithmic retailing (AR) – the term used by Gartner for the use of AI in retail to drive automation and recommendation systems – is an essential tool in the fight against inflation. It connects big data – every vital point from the shop floor to the stock room to the supply chain, and beyond to live market data – with algorithmic AI which is able to analyse that data quickly, precisely, and independently. Algorithmic retailing enables the automation of processes and planning through strategic guardrails and thresholds providing a way to smoothly turn a go-to-market strategy into reality, and intelligently share data between all business units to ensure their alignment.
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Deep insights through deep learning
AR is a tool which, once trained and established, knows the important figures more intricately than a human ever could. It aids broad strategic changes, but also enables business adjustments and predictions to be made on a microscopic level, based on data points which may otherwise be missed. It is perhaps the most powerful strategic tool available to today’s retail businesses, and a vital solution to the inflation equation.
The ability to free up human bandwidth by, for example, determining the pricing of lower-impact items through an AI model allows the strategic focus to be put on in-demand items, essential in a high-inflation environment. The CPI is calculated based on the contents of an average shopping basket; knowing the precise impact of pricing on less critical items may be exactly what is required for retailers to invest in lowering prices on the CPI’s staples and keep customers happy.
Predict, discover, test, respond
Algorithmic retailing’s insights are as granular as they need to be. They can offer anything from a sweeping oversight to minute-by-minute analysis of an individual product. Since we cannot assume that the effects of inflation will be the same across every product line and on every supplier, an algorithmic approach allows product verticals to be separated, analysed, and acted upon individually. Changing market dynamics, however slight, need not lead to panic; with all the data available and an algorithm ready to respond, an effective response is readily available.
AR can build predictive models based on market data. It backs up proposed changes by generating detailed simulations, taking past data into account. Every strategic decision is then ready to be confidently put in place, having already been fully tested. Those areas where the fluctuating market clashes with existing strategy can be quickly identified, and the solutions found. ONS statistics show that inflation has been highly unstable over the past few years, yet the agility offered by AR creates the opportunity to pivot on a moment’s notice and make the most effective response to changes as they happen.
A robust strategy for present and future
Retail AI is not equivalent to the AI currently being popularised by text-generating neural networks; AR’s live calculations are based on rigid data and sharp calculations, not on educated guesswork. Its automations must follow strict guard rails, ensuring that prices and orders stay within defined limits. Caution and calculation are the tools that will fight inflation, and the extra advantages of AR make it a critical piece of the puzzle.
Fighting inflation and, indeed, staying afloat while the markets demonstrate significant turbulence means delivering better value to customers. A business backed by algorithmic retailing techniques can access that value more easily and with more agility than those entirely reliant on the human factor, making fewer costly mistakes thanks to a robust ability to test and refine strategic shifts before they are implemented. Without the aid of algorithmic AI, revising pricing strategies is a resource-heavy task that’s fraught with risk; with AR on board, it’s a straightforward procedure.
Once the current inflation crisis has subsided, retailers that have retooled and refocused their strategic outlook will emerge healthier than ever, ready to form new strategies and make the most of a healthier market. And if the graph happens to spike once more, they’ll be well placed to keep costs low where it counts and drive competitive advantage.
To learn more visit: https://www.retailexpress.com/solutions/end-to-end-merchandising/
Ed Betts, Retail Lead Europe at Retail Express
Ed has worked in the retail industry for over 20 years and joined Retail Express in 2019 where he is General Manager for the UK and Ireland. Ed has extensive and specialty knowledge of retail category management, pricing and buying requirements having worked with several UK retailers, including 8 years at Asda where he developed and launched a standalone online wine service. Following this, he worked for Distell, a large international drinks manufacturer, where he managed strategic accounts across several major UK grocers including Morrisons, Asda and Marks & Spencer. Ed is also Retail Express’ Head Consultant helping clients make more effective use of the products and services as well as providing consultancy on the effective use of pricing and category management.
