If you’re a U.S. retailer, the past 20 months have been a roller-coaster ride like no other. Pandemic-related shutdowns followed by unprecedented spikes in consumer demand. Global manufacturing slowdowns, raw material shortages, and supply chain delays. Add to these headaches the tightest labor market in years plus inflation-driven spikes in prices, and it’s easy to understand why retail executives are working overtime at problem-solving. Every day brings a real-time urgency to navigate through disruptions.

Yet despite the unusual conditions, retailers remain optimistic. A recent survey shows:

• More than 75 percent of retailers increased their holiday inventory orders for 2021 in anticipation of greater consumer demand.¹

A strong cash position provides another reason for optimism. Most retailers exited the first waves of the pandemic in 2020 with strong liquidity profiles, appropriate cash reserves, and access to necessary capital, including credit and equity. Having adequate liquidity helps cushion the affects of inventory fluctuations, timing delays, and increased transportation costs.

Key considerations to mitigate supply chain risks and other pressing issues

There are many ways to position for success in 2022 and beyond. These recommendations can help retailers improve profitability, increase efficiency, and boost customer satisfaction.

1. Identify your pressure points. With so many issues occurring simultaneously, it can be hard to know where to act first. Outlining the key challenges for your specific retail business helps the entire organization focus together. Consider: Where can you absorb additional costs? What can you pass on to consumers? What other efficiencies or liquidity strategies need to be put in place?
2. Optimize your channels. Some pandemic-induced buying habits are here to stay, including online ordering, home delivery and curbside pickup; they reflect customer preferences for transacting with retailers. As more retailers adopt these tools, expand capabilities, and continue to pivot to meet the ever-changing demands, savvy consumers will gravitate to retailers with the smoothest customer experience and strongest value proposition. Now is the time to ensure all your physical and virtual storefronts provide the best possible experience.
3. Diversify your supply chain. Prior to 2020, retailers viewed a vast global network of manufacturers, suppliers, and distribution points as essential. Now, the sheer scope of Asian manufacturing challenges and global shipping delays have many rethinking that strategy. Some retailers are already investigating alternatives closer to home, such as domestic or Mexican suppliers that limit potential transit challenges to “on land.” Others are acquiring their own trucks or hiring drivers to secure inventory faster and expand their options for last mile delivery. A few have even turned to costly air freight services as a last resort.
   The current challenges may take months (if not years) to loosen, making it prudent for retailers to create plans B, C and D for the retail cycles ahead. Diversifying vendor concentrations is one way to operate more nimbly.
4. Put flexible financing in place. One of the best ways to offset unusual market conditions is with asset-based financing instruments. These credit lines help retailers manage fluctuations in inventory and mitigate supply chain challenges with structures naturally built with flexibility. Asset-based structures are focused on the underlying asset values, which can provide for more borrowing capacity in some instances and covenants that are liquidity driven rather than maintenance covenants, which was critical to retailers during the height of the pandemic. Two recent scenarios where asset-backed financing has proven useful are:
   • Retailers ordering proactively, in order to ensure stocked shelves during peak periods. This can mean paying suppliers and shippers earlier than anticipated.
   • Retailers storing inventory for longer periods because supply chain delays cause products to arrive out of season. This requires additional warehousing costs—sometimes up to a year—and lengthens the final consumer sales cycle.
5. Have an exit strategy. This can be tricky when backlogged items show up well past their intended season. Planning now for a variety of scenarios—whether it’s deep discounts, working with jobbers, or simply holding inventory until the next season—will improve your responsiveness.

Collaborate for long-term solutions
In the end, retailers who can balance short-term crises with a long-term approach will set their organizations up for success. Work with your commercial banker and supply chain partners in a constructive dialog that provides solutions to support your business in 2022 and beyond.

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¹  Deloitte, “2021 Deloitte holiday retail survey,” October 2021