As Recession and Inflation Fears Loom Over The Holidays, Retailers Need an Extra Strategic Approach This Season

By preparing for the upcoming holiday season year-round as opposed to just in the second half of the year, retailers can directly apply lessons learned from the previous year, effectively plan for various scenarios based on different external factors (i.e., inflation) and get a head start on competitors.

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By Ben Richmond

Opinions expressed by Entrepreneur contributors are their own.

Over the last couple of years, Christmas in July has taken on a new meaning for retailers — what once was an opportunity to offer a summer sale has now transformed into a critical time to prepare for the upcoming holiday shopping season.

But the past few holiday shopping seasons have proven to be anything but ordinary. The past two years, the pandemic caused supply chain delays resulting in backlogs and undelivered gifts, a challenge for retailers and a lesson learned for consumers. As a result, this year, consumers began their holiday shopping earlier to avoid supply chain bottlenecks and to combat high inflation — with 25% of consumers starting as early as August or September. Additionally, the pandemic accelerated the online shopping trend, with new data suggesting that 24.5% of this year's total retail holiday sales will come from online orders.

With all of this in mind, some (myself included) may argue that July may be too late for retailers to start their holiday season planning, especially given that the holiday season can account for up to 30% of retailers' annual sales.

Related: July Is Just Early Enough to Start Planning for Holiday Selling

So, how can retailers adapt their strategies to focus on holiday season planning throughout the entire year (as opposed to just the second half) to cover all their bases, increase revenue and prepare for the unexpected?

Prioritize cash flow planning

Consumers are currently facing the highest inflation rates in nearly 40 years and a halt in government stimulus payments, which in turn impacts how they approach their holiday shopping (e.g., how much they're planning to spend, through what channels, etc.).

As a result, small business retailers are entering a challenging and unpredictable time. To mitigate this uncertainty, they must look internally and assess their cash flow well in advance of the holiday season in order to be best prepared for what's ahead.

The most effective way retailers can approach this is by creating different cash flow scenarios early in the year that map out the business' best-case scenario, worst-case scenario and most likely scenario for how the holiday season will pan out. Accounting for these three scenarios can help retailers create a plan of action for how they'll tackle any challenges and how they'll activate each scenario. Proper planning gives business owners the confidence needed to forge forward by removing ambiguity and unexpected situations (e.g., not having enough cash on hand, supply chain delays) come the most critical time of year.

Whether you're a big box retailer or a local mom-and-pop shop, it's important to have a full understanding of your cash flow positioning year-round in order to make key business decisions and plan for various scenarios. For small businesses, leaning into technology such as Xero, a cloud-based accounting software platform, allows small business owners to keep track of their cash flow across the customer journey. Keeping track of this data in real-time can help retailers see their full cash position at any point in the year, which can help contribute to their holiday planning strategies.

An important question all retailers should be asking themselves early in the planning process is: How will my product/service make out if the economy dips into a recession and budgets get tighter? Where does my product/service sit on the hierarchy of needs? If you're a retailer selling non-essential items (e.g., jewelry, home decor) your planning strategy may look different than if you're selling essential items like groceries. Having an understanding of your product and consumer purchase patterns will allow you to assess strategies such as how to price your product, how to manage the supply chain, how to effectively market the product/service and beyond.

As retailers start their holiday planning earlier in the year, what factors should they consider during the planning process?

Return policies

According to the National Retail Federation, $218 billion worth of online purchases were returned in 2021 — more than double the year before. The uptick in returns is likely due to retailers offering more lenient return policies during the pandemic as they sought out creative solutions to address in-store closures/restrictions.

Two years later, retailers (especially small businesses) are now facing higher costs for labor and shipping due to persistent inflation, requiring them to look inward for alternative ways to reduce costs (which for a lot of retailers is shaping up to include changes to generous return policies).

My advice: Retailers should continue to offer lenient return policies around the holidays, including keeping the return window at least 30 days (in-person and online) and allowing for online-only purchases to be returned in stores. Keeping the window shorter (but still allowing for returns) can help alleviate the impact returns have on the beginning of the year's cash flow.

Supply chain

Worldwide supply chain constraints have had a lasting impact on retail operations. If we've learned one thing from these challenges, it's the importance of planning.

Having an adequate supply chain strategy in place will reduce the risk of overspending on unnecessary items and the risk of running out of supply for highly sought items. Ordering inventory early in the year can ensure you have adequate stock for top-selling items when the holiday season rolls around. Not having a bestselling product available often means the product will get substituted by the best alternative.

My advice: Consumer data is your best friend. Properly tracking and utilizing this data can help you have a better understanding of your consumers and their purchase patterns, and which products will likely be in high demand during the holidays (for inventory planning purposes).

Related: Think It's Too Early to Strategize for Holiday Ecommerce Sales? Think Again.

Labor market

A tight labor market and rising labor costs continue to cause challenges during the holiday hiring season. Failing to meet hiring goals can eventually lead to a loss in sales due to not having enough staff to help ensure shipments, inventory and in-person sales are accounted for.

My advice: Retailers should consider revamping recruiting strategies, raising wages, offering flexible schedules and extending benefits in order to attract new or seasonal hires. For retailers who are rethinking their reliance on seasonal workers, consider more appealing offerings for regular staff to take on extra hours.

Consumer behavior

The current economic climate has impacted the way consumers approach brand loyalty, with many looking to shop for the best deal, even if it's not through their preferred retailer. As economic uncertainty persists, consumers are experiencing behavioral shifts.

My advice: Retailers should focus on loyalty strategies to reward customers for shopping at their stores (e.g., offering exclusive deals to loyalty members or offering a point system for each dollar spent rewarding customers down the line with credit or a gift). Retailers can also draw in new customers by offering bonus rewards for signing up for the loyalty program that encourage them to return to the store. Creating a connected omnichannel experience where the physical and online stores sync is also a big draw for consumers.

Adequate planning and forecasting throughout the year is the foolproof way to ensure your business is best positioned for the most wonderful time of year. By preparing for the upcoming holiday season year-round as opposed to just in the second half of the year, retailers can directly apply lessons learned from the previous year, effectively plan for various scenarios based on different external factors (i.e., inflation) and get a head start on competitors.

Ben Richmond

Entrepreneur Leadership Network Contributor

U.S. Country Manager, Xero

Ben Richmond is a chartered accountant and U.S. country manager at Xero, where he is responsible for driving Xero’s growth in the region. Ben has been recognized by CPA Practice Advisor as a “20 Under 40 Influencer” and was named Accounting Today’s “Top 100 Most Influential People in Accounting.”

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