Will the trade wars make cost to serve more vital than ever?

Retailers are fighting wars on many fronts.

Not only are they dealing with a hostile trading environment, with a possible recession looming, but they are also vending in one of the most unpredictable eras we’ve ever experienced. At home, Brexit and political uncertainty is leading to consumers counting the pennies, whilst abroad, alongside the pound waxing and waning, trade wars are raging, with the long-term effects unknown. 

For example, the trade war between China and the United States has cost the US tech industry alone over $10 billion – in little over a year. For a big country like America this is troubling – especially when you consider it is the biggest technology market, representing 31% of global sales, or $1.6 trillion for 2019. However, what sort of impact would this have in the UK? Put bluntly, it would be crippling. Whilst we are certainly not entering a trade war, retailers know how uncertain and fragile the market is, and therefore must be prepared for all eventualities over the next 12 months. For those trading here and abroad, there is pressure on the balance sheet, with online a key component in helping to relieve the stress. 

So, what can be done?

Don’t be a sheep

The customer is king is one of the golden rules of retail – they come first. Without them, there is no sale. However, many retailers have fallen into the trap of wishing to please the customer that little too much – and commercially it has backfired. 

Take ASOS as a prime example. 2019 has not been a good year for the once darling of listed businesses, with the online giant recently reporting a disastrous 70% dip in profits. It overextended itself with overseas expansion without the infrastructure or people needed to support its ambition. Therefore, when automation and new warehouse Order Management Systems (OMS) problems arose, affecting customer service, the retailer saw its fortunes eroded by poor customer feedback and new competitors stealing its crown. 

In light of these hurdles, its decision to cut prices to drive sales and win back customers was an illogical one, and now it faces 2020 on the side-lines as it tries to recalibrate its success. 

The rise of Boohoo and its high volume/low margin approach to fast fashion has shown that businesses built on different models should not try to compete, as ultimately it won’t bring success. It’s a prime example of when brands should stick to what they know and do best – not copy the competition. A similar example could be said of this year’s release of folding phones. Gimmick aside – a successful product is one that is durable and delights the customer – a brief which has not been met thus far. 

Cost consideration should drive strategy

Another issue with the customer being king is that brands can sometimes fall over themselves to please the end user – thus offering above and beyond the realms of reality to deliver a sale. Free next day delivery, extortionate price cutting – I could go on. These are the types of promotions retailers are offering to reel in Ecommerce sales. 

This strategy has to be re-evaluated though, as it’s not a guarantee of success, as seen by ASOS. Or the Big Four supermarkets trying to take on Aldi and Lidl. In fact, the effect is usually stressed margins, as departments fail to adequately take into account the actual costs contained in the supply chain. Costs fluctuate, especially around supply and demand (delivery can prove expensive during sale season) and forgotten costs need to be remembered – such as email marketing costs, SEO/ad costs or plugins. Without full visibility into costs along the supply chain, retailers and website operators can’t accurately decide on a discount level which equally will encourage sales but in a profitable manner. ASOS fell into this trap – others must take heed. 

Don’t allow your shop window to let you down

A website is a shop window – it tells the user everything they need to know about the company and will influence whether they return or not. Ahead of sales periods, a trend I’ve noticed recently is business’ desire for data outweighing website performance. Plugins which intricately map out the user journey are being prioritised over load speed – ironically deterring sales and costing the business data. When accounting for supply chain costs, website add-ons such as this need to be considered, as not considering the repercussions be a costly mistake. 

Tech should be a help, not a hindrance

Ecommerce is such a key component to UK retail that brands can’t afford to become complacent, as the unpredictable nature of today’s trading environment means that nothing is guaranteed. This year especially, retailers must take stock and consider how much they can afford to discount over the sales period, to shore up reserves and make sure they can deliver the basics so as not to disappoint customers. Price is not the only way to win over consumers – other tricks of the trade like personalisation or bundling can deliver just as much delight, whilst not threatening the profit margin quite so heavily.

What is for sure is that retailers and brands must learn from the trade wars – you never know what is around the corner, so don’t threaten the profit and loss unnecessarily. Going back to basics and not copying others is a good start, with website fine-tuning thrown in to ensure a smooth, frictionless experience. There’s no denying it’s tough going for retailers currently, but now is the time to heed caution and not be overambitious as Black Friday looms. Ultimately, booming sales figures mean nothing if it costs the business. 

About the Author

Tom Williams is Head of Ecommerce, Maginus. An enthusiastic, dedicated and creative worker, with an eye for detail. A quick learner, I thrive on managing the different priorities of a busy commercial environment, which is needed to support my clients, Nisbets, The Royal Mint & Fortnum and Masons to name a few. My career to date has provided a good grounding in organisational management with an insight into the dynamics of a growing team. As a self-motivated and flexible individual, I respond well to both self-initiated work and working within a team. My management experience has helped to develop strong people skills that serve to bring out the best in people, be it colleagues or clients.

Featured image: ©ArchiVIZ