Inflation is at a 30-year high right now, offsetting gains in employment rates and wages and leaving consumers reeling in the face of rising food and fuel costs. Global supply chain issues are still the main culprit, causing shortages and driving up prices. Now, businesses are struggling to keep shelves stocked and predict customer demand. It will be especially difficult for independent businesses to solve inventory and pricing challenges, and there are no easy answers. With that in mind, let’s take a look at how businesses large and small have navigated past inflationary periods, and what independent garden centers can do to weather current challenges.
During the 2008 recession, large retailers considered closing stores on the outskirts of their networks in order to consolidate their supply chains. Succeeding during the subsequent period of inflation depended on inventory management, pricing, and effective use of promotions. Businesses stocked up on inventory wherever possible, believing that it would be more effective to buy now at a lower price to avoid having to restock at a higher price—and pass those costs onto the consumer—later. As price increases did not affect all products across the board, many retailers ran promotions on items whose costs did not increase in order to keep shoppers happy.
In the years following the 2008 recession, independent garden centers learned that higher prices do not automatically lead to decreased revenue. The IGCs that weathered that economic downturn and even thrived during it were the ones that focused on value rather than price, successfully differentiating themselves from cheaper big-box competitors. In these cases, higher prices led to a lower volume of sales but an overall increase in revenue. The shoppers that privileged quality and supporting local businesses continued to shop at their local IGC.
Target and Walmart have strived to maintain low prices even as their costs increase. They’ve elected to follow this strategy because consumers expect lower prices from these brands. This approach has paid off for them, resulting in higher earnings than forecasted. However, it has also resulted in an investor backlash, with both companies’ stock prices falling during this period. It remains to be seen how the tension between higher revenue and lower stock prices will play out over the course of the year, but this is a problem for publicly traded companies to worry about.
What lesson can IGCs learn from this example? It’s not that you should keep prices low. It’s that you have to maintain consumer trust. These brands have a reputation for low prices, so it is in their longer-term interest to nurture that reputation.
There is nothing more frustrating for a consumer than making the trip to a local store only to find that the item they came for is out of stock. While it may require a lot more work on your part, it may be in your best interest to line up alternative suppliers. Because of the high cost of transportation, consider working with local suppliers, as well.
You may inevitably have to raise your prices. When raising prices, it’s best to do it slowly, and not on all of your inventory at once. Experiment with pricing week by week to figure out what works best for you. As in 2008, you may see a lower volume of sales but higher revenue once you find the sweet spot.
IGCs already know they probably can’t compete with big-box stores on price. Now more than ever, it is vital to demonstrate your value to customers. While you’re not as cheap as the major retailers, you can offer higher quality, better service, more expertise, and a customized shopping experience. On top of that, you are a part of the fabric of the local community in a way that a big-box store could never be. Target and Walmart are maintaining trust with their customer base by keeping prices low. IGCs will have to maintain trust with their customer base by continuing to demonstrate excellence in the areas where they are superior to big-box stores.
Part of maintaining trust with your customers involves transparency. Empathize with your customers’ struggles—as a small business, you may be struggling too—explain why the prices of some goods are increasing, reassure them that prices will return to normal in the future, and thank them for their continued support.
It may seem counterintuitive to do so in a time of hardship, but this is also a good time to double up on your marketing efforts. It is likely you will lose some business as once-loyal customers are forced to tighten their belts in the face of rising housing, fuel, and food prices. In the meantime, keep your name and your brand out there so they don’t forget about you. Raise your social media profile to keep those erstwhile customers excited about gardening and eager to return to the garden center.
Finally, there is an opportunity to get creative here. Fast food restaurants such as Del Taco are pointing to inflation as a reason to eat out. Independent garden centers can take a page out of their advertising playbook and use the skyrocketing price of groceries to entice some consumers to skip the produce aisle and grow their own.
While the lingering effects of the pandemic and the uncertainty surrounding new variants continue to affect the economy in unpredictable ways, these challenges are also opportunities for small businesses to rethink their relationships with suppliers and customers. If you’re able to determine exactly what your business is, what it represents, and who you are serving, you will be well-positioned to weather this storm and come out stronger on the other side.
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