With consumer demand recovering quickly from the pandemic and supply chains still tangled up, inflation is on the rise, pushing up costs even as retailers try to compete in an environment where customers can shop endlessly. fingers.
Over the past 12 months, the Consumer Price Index – which includes the costs of shelter, food, energy and sales of other goods – has risen 5 percent, the largest increase in 12 months since a 5.4 percent increase that ended in August 2008. The index has been trending upward every month since January, according to the Bureau of Labor Statistics, while the 12-month change was 1.4%.
And analysts don’t expect inflation to drop anytime soon. In fact, Fitch Ratings warned earlier this week this core inflation – which includes all items except food and energy – will likely increase in the coming months as pressures on the supply chain continue and consumer demand remains rising. Core inflation jumped to 3.8% year-on-year in May, the highest since the early 1990s.
In times of inflation, Matthieu pavich, managing director of the global strategic board of the Atlanta-based price optimization platform Aptos, finding the optimal price for goods is crucial – and it has become even more important, if at all possible, in the midst of a ” unique moment for retail ”.
Brand loyalty is declining, Pavich said, as consumers increasingly get used to comparing prices between retailers, even when shopping in-store. “Price perception is more important than ever,” Pavich told PYMNTS, noting that grocers are particularly vulnerable because they haven’t had to compete with Amazon as much as other retailers, such as Best Buy.
“Every retailer has opportunities”
However, not everything is pessimistic – Pavich said rising inflation could actually be an opportunity for more retailers to use artificial intelligence (AI) and price optimization software to actually increase their income while continuing to satisfy customers.
By using pricing technology and science, rather than relying on the ability of humans to do math, retailers may in fact be able to keep prices stable, or even lower, on their items. most important, by paying for that investment – as well as increased costs due to inflation – with higher prices on other items that are less important to consumers.
“Every retailer has opportunities in price optimization,” Pavich said. “It’s just a matter of finding out what those opportunities are. Additionally, he said price optimization data can be used to strengthen retailer relationships with third-party vendors. “At the end of the day, it’s just nice to have the analytics, the data, and the supporting tools to help understand what will happen if I do X versus Y.”
Barriers to adoption
Fitch predicts that core inflation will rise to around 4.5% yoy by the end of 2021 before falling to 2.5% yoy from mid-2022, assuming it there is no increase in wages or inflation in rents. Most economists, including those at the US Federal Reserve, say it’s best to aim for an inflation rate of 2%.
But even when inflation subsides, Pavich still expects price changes to spike as demand continues to change after the pandemic. A product that might have been elastic two years ago, for example, can be elastic now, and retailers can use the analysis to refresh their strategies. “There’s a lot going on with the changes in demand in the market,” he noted.
Pavich said the adoption of AI and price optimization technology in the retail industry is primarily based on the ability of retailers to process change. “But the speed and amount of data and competitive intelligence and the way it’s processed… it’s going to continue to increase,” he predicted.
Pavich said the biggest obstacles are organizational will and operational constraints. If, for example, a retailer asks humans to place price signs on shelves, it slows down their ability to react to price optimization data.
“The costs are increasing,” he said. “Uninformed retailers will just increase their sales and hope for the best. Savvy retailers using AI solutions will do so strategically.