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Retailing During a Recession: 5 Ways to Recession-Proof Your Business
The talk of the town for the last few months has been of a recession.
Record-high inflation and rising interest rates are signaling an impending one, but the National Retail Federation announced that while the economy’s rate of growth is slowing, we won’t be entering a recession during the remainder of this year.
Still, brands and retailers are rethinking their strategy for the second half of the year, especially for tackling increased shipping and labor costs, prevailing supply chain issues, and price-conscious customers.
And it’s critical that they are. Even without current recession concerns, it’s clear from the last few years that brands need to be ready for any type of economic condition.
What does a recession mean for brands and retailers?
For retail, previous recessions have accelerated emerging trends and widened the performance gap between businesses. According to a Harvard Business Review article, the key difference was preparation.
The aftermath of the Great Recession revealed a stark difference in how businesses performed depending on whether or not they had prepared. The most resilient businesses built their cash reserves, created room for margin hits, expanded into new markets, maintained great customer service, and communicated their value proposition.
This last point is especially pertinent during a recession because consumers will be reassessing which products they consider to be necessities. They will continue to spend on food, health, and essential clothing—and buy from brands they trust—which means that brands outside of these industries need to reshape their “why”.
With preparation and agility, brands can turn a recession into an opportunity for driving customer retention, strengthening market position and making the business more efficient. In this article, we’ll explore five innovative ways that brands can recession-proof their business.
5 Ways to Recession-Proof Your Business
1. Focus on products that bring customers the most value
Brands across the board will turn to discounts and deals to attract customers, but the price-conscious customer is more value-driven and will mainly be shopping for items that serve a need for the long-term. This means that you should identify your top-selling products and communicate their value in your marketing. By doing so, you can optimize your inventory and avoid over-ordering products that don’t sell as well.
Deepa Gandhi, COO and co-founder of bag brand Dagne Dover, told Modern Retail that the company is “re-looking at how we’re flowing our inventory to make sure we’re investing in the items that people buy year-round.”
2. Double down on your marketing strategy to strengthen customer loyalty
When it’s time to cut costs, marketing is usually the first target. But lessons from previous recessions have shown that the brands that continued to invest in their marketing strategy are the ones that showed the most resilience. In fact, a McKinsey report found that all the resilient players they spoke to maintained or increased their marketing expenses during the Great Recession.
This makes sense, given that marketing efforts are key to communicating with existing customers and reaching new audiences. It is almost always less expensive to retain an existing customer than acquiring a new one, so the focus of your marketing strategy should be to deliver targeted, personalized messaging to your customers. First-party data in particular is critical for understanding where and how customers are shopping, and knowing this can better inform your marketing strategy.
Running a strong marketing campaign when your competitors aren’t is also an opportunity to capture customers outside of your core market who aren’t yet loyal to a brand. A Harvard Business Review article calls this group of customers “switchers”. During the Great Recession, T.J. Maxx increased their advertising spending by 15%. The following year, they reported that 75% of shoppers had never shopped at the store the previous year.
By identifying where your switchers are shopping and focusing your marketing efforts in those areas, you can strengthen your market position and drive customer loyalty.
3. Form partnerships to increase brand awareness and reduce CAC
Joining forces with other brands present several opportunities to increase brand awareness and reduce costs across multiple aspects of the business. For starters, you’re putting your products in front of the partner brand’s existing, loyal customer base. This allows you to reach high-intent customers, and reduce customer acquisition and marketing costs. A Forrester report found that nearly half (49%) of survey respondents saw a boost in revenue and 45% saw increased brand awareness from their partnership initiatives.
Beyond cross-selling products, there are other effective ways to leverage partnerships, such as co-marketing and co-sponsored events. Once you find the right partner brand, you can start to leverage the many advantages of a partnership.
4. Invest in a subscription model
With subscriptions, it’s all about personalization and convenience. The pandemic highlighted subscription as an effective business model. It gave brands a steady stream of revenue, and offered customers more flexibility and opportunities to save. Subscriptions have continued to be an extremely important revenue stream for brands and are only growing in popularity.
A McKinsey article found that 80% of consumers who signed up for new subscriptions during the pandemic planned to keep them. They cited the benefits of tiered pricing, personalized recommendations, and exposure to a variety of high quality products.
Through subscriptions, brands have more opportunities to deliver great experiences for their subscribers, directly increasing their lifetime value and customer retention.
5. Deliver great customer experiences through innovations
A study conducted by Watermark Consulting revealed that businesses that offered high quality customer experiences tend to do better during recessions. You need to continue innovating your business to increase customer loyalty and reduce churn.
When customers are more price-conscious, they are more likely to shop with brands they already know. Such purchasing behavior means that you need to have insight into your customers’ needs and deliver personalized experiences to drive retention.
You should keep an eye on:
- Which customers are making repeat purchases
- Which customers are spending the most
- Which marketing channels are generating the highest ROI
With innovations in data collection, analytics, and more, there are numerous opportunities for you to invest in tools that elevate the customer experience.
Recession-proof your brand with innovations
If we could highlight just one thing from this article, it would be the importance of maintaining a great customer experience for all your customers and also focus on retaining your existing customers. From new business models to brand partnerships, there are many ways for brands to reach new customers and strengthen their relationships, but while bringing in new customers it is extremely important to focus on strengthening your relationships with your existing ones.
