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During the Pandemic, Businesses Saw Increased Profits
It’s interesting that the last couple of years have been extremely hard socially for individuals, but economically it’s been a prosperous time for businesses. I used to work in the women's clothing boutique space. Many of my counterparts said that they made their best profits from 2020-2021.
Some of this increase was due to the abrupt move to online shopping, when all of the world was on lockdown at that time.
Stuck at home, with few recreational outlets, people used their excess funds to shop online. According to the United States Census Annual Retail Trade Survey, online shopping sales exploded during the first year of the Covid-19 Pandemic. With sales growing a whopping 43% during this time!
What happened in retail was not an Anomaly
Higher profits from 2020 through 2021 was not isolated to boutiques or the retail sector at large. When looking at Corporate Profits from the Bureau of Economic Analysis’ National Income and Products Accounts, there was an increase in profits across a wide range of sectors: from Financial, Non-durable goods, to Chemical products, to name a few.
Economic Trouble is Looming
However, If you’ve been paying attention to financial news (as a business owner, you absolutely should be), you know that the economy has been volatile lately. While many industries were seeing record profits during 2021, this year, in the retail sector, a break in the dam is emerging.
Large retailers, known for their profits and success, are now predicting hits to their bottomline due to the current market volatility and shifting consumer habits. In May, both Target and Walmart stated that they were looking at ways to offload excess inventory.
The following month, in reporting from CNBC, Target announced that they will be taking “aggressive” markdowns to move merchandise. According to Target’s CEO, this decision will have a negative effect on their profits in the short term. However, making the choice to offload inventory sooner rather than later, will put them in a better financial position in the 3rd and 4th quarters of 2022.
Inventory issues aren’t the only problems businesses are facing.
Fuel, food, housing, inventory/supplies, have all gone up sharply in the last year. Businesses are getting squeezed- and so is the consumer.
In comparison from last year to this year, costs individuals pay for items have risen significantly. According to the United States Bureau of Labor and Statistics, in April 2022, the Consumer Price Index (CPI) rose 8.3 percent. While during the same time last year, CPI rose 4.2 Percent.
This historical rise in prices has people fearing that a recession is on the horizon.
This had me wondering, though… “If recession is looming, which industry might be affected first or impacted the hardest?”
Actually, I think I thought, “What will people (consumers) give up once their money gets tight?”
Even though I’m not actively selling anymore, immediately, I thought of the online clothing boutiques that have launched since the twenty-tens.
Not because they’re run poorly or they’re owners are less knowledgeable.
They came to mind because many online boutiques who’ve found success did so post the Great Recession. And they did so with the help of, and alongside the growth of social media. So several of them have not had to navigate and survive through severe economic downturn or crisis.
My familiarity with the boutique retail arena caused me to think of that industry. But in the event of a recession, they won’t be the only sector affected.
Regardless if you have an online boutique or another ecommerce store, there are some things you can do now to prepare just in case there is a recession soon.
Set a budget and stay within it
This should be something a financially-savvy business owner is doing already, but will be essential during a recession.
To get control of inflation, the Federal Reserve is increasing interest rates. This means that money you’ve borrowed or plan to borrow will cost you more. If, due to recession sales decline, paying off debts will become even more difficult putting your business at risk.
Having a keen understanding over inventory control is crucial; while also balancing having enough to meet consumer demand. An issue in the retail sector at the moment seems to be a glut of (unwanted) inventory and a lack of insight into what consumers actually want or need.
If you can stay nimble with your inventory, it will help you weather economic uncertainty.
See if there are any new, but proven, marketing or sales strategies that you could implement. For example, to keep some of your returning customers shopping, maybe offer points program.
Or, if you run ads solely through one platform, try adding another to gain more brand awareness.
Think seasonally and plan. Larger retailers are already thinking this way. For example, it’s summertime so your back-to-school strategy should already be planned. Your strategy for moving summer inventory out should be in place.
During the heart of the pandemic, there was a huge shift in fashion to loungewear. Also, because consumers were at home, they did a lot of decorating. Based on this data, large retailers ordered home furnishings, appliances, and loungewear.
But guess what?
Consumers are traveling again. Now, decorating their homes can wait. Consumers want to be - and can be - outside. So, they don’t want to wear joggers or leggings. They want to wear dresses (Bloomberg).
As a business owner, data is your best friend. Use it! Send your customers a survey. Ask them what they want to see in your store. Keep track of email open rates to see if there are differences based on item-type. Investigate if sales are slowing in certain categories. Observing and utilizing your data will help you adjust more quickly to what customers actually want.
You can still use your business savvy and intuition. That said, it’s better to know beforehand rather than to make assumptions, and then need to take heavy markdowns later.
Don’t worry! Make a plan and push through.
Do you have items that can be stored until the following season? Is this the best economical solution for your shop? Is it better to markdown items early, earn as much profit as possible, and start fresh with new inventory?
Can you run an ad campaign, email, and/or text blitz for all excess inventory? Have strategies in mind so that you’ll know what to do when the time comes.
If you have an ecommerce store, have you thought about a possible recession? Are you doing anything to prepare?
