As inflation pushed up costs for retailers, many passed them on to consumers. Then came a wave of discounting during the holidays to spur consumer spending. But with many consumers on tighter budgets themselves this year, finance chiefs in retail will find it difficult to pull back on sales and discounts or raise prices without killing demand for their products.
This "game of chicken," what surveyors referred to this conundrum as in BDO's 2024 Retail CFO Outlook survey, requires retailers to look at cost optimization strategies in 2024. Finance leaders are taking a look at how they track inventory, maximize worker productivity, and incorporate GenAI into their processes. Despite these efforts, nearly three-quarters (70%) of the 100 CFOs surveyed by BDO in October 2023 said they would raise their prices again in 2024.
A little under two-thirds (60%) of retail CFOs aiming to increase prices said they would do so only slightly. Balancing consumer reactions to pricing decisions and driving profitability requires strategization. Automation and artificial intelligence, technology applications that CFOs in other industries have also begun incorporating into their workflows at scale, appear to be the top choice for finance chiefs at retailers, too.
Nearly half (48%) of those surveyed said they plan on leveraging automation and AI to properly cost-optimize this year. Slightly fewer (45%) said they would reevaluate sourcing strategies, with four in 10 (40%) saying they would outsource or co-source work. An identical number (37%) of respondents said they would conduct layoffs, reduce their real estate footprint, or both.
“It was a rocky 2023 with a lot of macroeconomic conditions working against retailers, yet because consumers remained resilient, retailers were still able to achieve moderate sales during the holidays," Natalie Kotlyar, national retail and consumer products practice leader at BDO, told CFO.
"Coming into 2024, while there's reason to be optimistic, we think retailers may need to taper their expectations. Consumers are likely to pull back on spending, and retailers may be putting too much faith in price increases or adjustments to keep their margins healthy."
Better Data for Inventory Management
To better understand what products sell when, how fast, and what their replenishment rate should be, organizations are increasing their use of technology. Due to inconsistencies in supply chain data, combined with the timeliness needed to obtain, process, and act on that data while it's still relevant, finance chiefs are turning to new solutions. Ninety percent plan to or already have allocated spend toward scenario modeling software, with 82% allocating or planning on allocating some budget to AI/machine learning.
"Retail CFOs really need to focus on the long game instead," said Kotlyar. "Improving the customer experience and building brand loyalty to improve sell-through and boost profitability [is important]."
Continued Kotlyar: “Enhancing the customer experience will be driven by the retailer's ability to not only harness data but also apply that data to AI use cases that fuel personalization. Retailers should also leverage their customer data for better demand forecasting, which enables more accurate inventory levels amid accelerating trend cycles."
Using readily available customer data to address inventory and supply issues is a prevalent initiative. Nearly six in 10 (59%) of the CFOs said they plan to leverage customer data and analytics to improve predictions and decisions around inventory.
The Desire to Upskill
Talent shortages aren't mentioned anywhere in the report. Indeed, nearly half of CFOs (48%) said talent shortages were less of a risk than they were one year ago.
However, the quality of talent is impacting interactions with customers. Nearly a third (32%) of those surveyed said their primary labor concerns related to inadequate customer experiences.
To address customer experience problems while undergoing digital transformations (59% said they plan on one in the next 12 months) and changing consumer demand, the majority of CFOs surveyed (52%) plan to increase opportunities for workers around upskilling and reskilling.
The 2024 Retail CFO Outlook Survey polled 100 retail CFOs from companies with revenues ranging from $250 million to $3 billion or more in October 2023. The survey was conducted by Rabin Roberts Research, an independent marketing research firm, using Op4G’s panel of executives, and promoted in part by studioID, a division of Industry Dive, the company that owns CFO.