The Chancellor’s Autumn budget planted the seeds of difficult political and economic decisions, the reality of which germinated this spring as the retail sector – the UK’s biggest employer – faced up to a potentially low growth year.
While the sector often operates on wafer-thin margins to try and maintain lower prices in a cost-of-living crisis, the targeted tax increase on National Insurance Contributions (NICs) and the 6.7 per cent rise in the National Living Wage will push wage bills up by £7 billion during 2025, according to the British Retail Consortium (BRC).
Looking at the tough reality of their ‘margins of terror,’ many retailers felt they had little choice but to increase prices and announce major redundancies ahead of the April 1 deadline.
There is significant concern according to the BRC’s latest survey of chief financial officers (CFOs) at 52 leading retailers, with 70 per cent of respondents “pessimistic” or “very pessimistic” about trading conditions over the coming 12 months.
When asked how they would be responding to the increases in employers’ NICs, two-thirds stated they would raise prices (67 per cent), while around half said they would be reducing ‘number of hours/overtime’ (56 per cent), ‘head office headcount’ (52 per cent), and ‘stores headcount’ (46 per cent). Almost one third said the increased costs would lead to further automation (31 per cent).
In addition, 46 per cent of CFOs said they would ‘reduce capital expenditure’ and 25 per cent said they would ‘delay new store openings.’ A total of 44 per cent expected reduced profits which will further limit the capacity for investment.
Supply Chain optimisation
Looking for more positive economic forecasts on the horizon, retailers could explore the competitive advantages which can be delivered through greater supply chain efficiencies. These not only reduce costs but also cut carbon emissions, in line with sustainability targets under ESG commitments.
Business supply chains are only as strong as their weakest links, so audits should look beyond the delivery of stock from A to B to the wider controls to measure performance, as well as rationalising logistics processes and protocols. This could be everything from reducing unnecessary ‘empty running’ of vehicles to the repatriation and repair of packaging assets such as pallets and totes, millions of which go missing in action or are simply stolen and end up for sale online.
It is easy in the cut-and-thrust of supply chain management for these vital assets – without which the supply chain would grind to a halt – to fall victim to a form of industry miasma. Instead of being looked after, they can be ignored, overlooked and taken for granted. Rather than malicious intent, the assets are often lost because of systemic indifference, leading to significant process or compliance failure issues.
Indeed, many retailers have employed third party ‘repo’ businesses to bounty hunt lost assets such as back-of-store cages, such is the scale of the problem.
Getting these processes right by putting a ring of steel around asset protection could save businesses millions of pounds every year. Longer term, a complete overhaul of the supply chain to become part of the circular economy could become the holy grail of efficiency seeking for retailers. Worryingly, only nine per cent of businesses in the global economy are currently part of the circular economy.
We are one such business, through our pooling of sustainable wooden pallets controlled in a closed loop which protects assets throughout their ever-evolving repair, re-use and repatriation journey.
We have forged relationships with logistics businesses to be part of that closed loop to make sure pallets are always in the right place at the right time and at the right cost. This reduces redundant journeys, saving tens of thousands of non-essential miles a year, as well as unnecessary and costly wear and tear on vehicles.
In what we describe as ECOnomics, the environmental sustainability of these circular models ultimately costs less than their linear equivalents in cash terms as well as reputational risk. This is a key differentiator in a world ravaged by cost-of-living crises, war and general geopolitical instability.
In short, managing business priorities should not be a flip of a coin as to wear an axe might fall. More proactive control of supply chain management can help insulate retail businesses from the full impact of any government tax hikes, to avoid draconian job losses and protect themselves for the future.
For more information on IPP, visit www.ipp-pooling.com or search for IPP Pooling on LinkedIn.