‘Perfect storm’ is an over-used phrase. But there’s no doubt that Ireland’s retail industry is facing into a collection of cost pressures which have more than enough force to rattle the foundations.
Plenty has been written and said about inflation in the post-COVID era, a global phenomenon that has seen retail margins squeezed by hikes in material, production, energy and transportation costs. On top of that, a trend in rising labour costs in Ireland over recent years has taken a sudden leap with the introduction of the €12.70 minimum wage, a policy intervention that trade body Retail Ireland claims will result in a 37% hike in wage bills over the next two years.
Sprinkle in growing shrinkage caused by a spike in retail thefts, plus the fact that retailers are simultaneously battling slowing footfall and decreased sales volumes, and you can see how the problems start to resemble a looming crisis. A recent survey from Retail Excellence Ireland found that 48% of participants felt they didn’t have the bandwidth to absorb increasing costs.
When you find yourself in that situation, the question becomes whether you can create the headroom to accommodate rising costs in your financial planning. It’s not always easy, but with the right strategic approach, it’s surprising how much financial leeway you can find in most businesses.
Here are three tips for getting started.
Audit all outgoings
The first step to getting rising costs under control is having a clear view of all outgoings. Carrying out a financial audit will tell you precisely where your money is going and give you the intelligence you need to make a plan. From here, you can sort expenditure into what is necessary and what isn’t, and start looking at cutting back on what isn’t. And even with necessary costs, it’s important to have clarity on whether they are sustainable as a proportion of your revenue and margins, or whether you need to look at options for reducing them, as well.
Budget for cost increases
It might seem like stating the obvious, but budgeting with projected cost increases in mind goes a long way towards maintaining control over your finances even while inflationary pressures bite. The key is to be thorough. You don’t have to be 100% certain about future forecasts to build robust and workable models. Budgeting for a worst case scenario on potential cost increases, with more optimistic models for average and best-case rises, can give you the flexibility to adapt your spending according to how things actually pan out.
Be prepared to renegotiate
Finally, if your auditing and budgeting processes do throw up stark imbalances in the size of some of your expenses, don’t feel you are powerless to do anything, even if they are mandatory core costs. If it is inventory or logistics costs that are spiralling out of control, ask to renegotiate terms with your current suppliers, or look elsewhere. If debt repayments are causing an issue, again, talk to your creditors. Most would rather negotiate new payment arrangements than see a debtor default.
One last piece of practical advice is not to feel as if you have to go it alone on dealing with the intense cost pressure facing retailers at the moment. With years of experience working with retail clients, our specialists understand the intricacies of managing finances in such a fast-paced industry, and have the expertise to help you get costs under control through prudent planning.
