Everything You Should Know About Risk In The Retail Industry

3 min read

by Jordan MacAvoy

The retail sector has experienced remarkable expansion over the past few years. This success has whittled down to the different retail sub sectors, which are also experiencing significant progress. Many attribute this expansion to the growth of e-commerce.

Nonetheless, the vastness and complexity of the industry lead to risk. Besides, emerging issues such as the COVID-19 pandemic, present both positive and negative risks to the retail industry. 

Are Retail Risks Any Different?

Generally, the risks that businesses across all industries face tend to be similar. However, the retail industry is somewhat different because owners and managers primarily address risks that relate to the consumer.

As a result, retail companies have a broader risk portfolio due to the complexity of the consumer market. Owners of retail businesses need to understand the risks that they face, and how to mitigate them.

What are the Major Retail Risks? 

The risks that face the retail industry come in multiple forms. They can be in the form of new regulatory measures imposed on retailers, new products entering the market, or even new distribution channels that competitors develop. Some of the retail risks that you face are: 

A Drop in Consumer Spending

As a retail owner, most risks that you’ll encounter relate to the consumer. A drop in consumer spending in particular, is the greatest threat to a retail store. It affects your cash flow and ultimately, day-to-day operations.

Often, consumer spending is determined by reasons that are beyond your control. However, you can mitigate risk by implementing several measures, including:

• Adopting a strategy for bringing more customers through your doors

• Monitoring the impacts of external factors such as economic downturns and unemployment on consumer behavior

• Monitor sales daily to pinpoint internal factors that could be affecting consumer spending

Competition

According to a recent KPMG report, competition in the retail sector is at an all-time high. Brick-and-mortar stores in particular, face stiff competition from online retailers. The exodus of shoppers from physical stores to e-commerce stores has exacerbated the challenge of where and how to compete.

In this regard, retailers should be able to innovate and offer superior services because this is the only way of competing favorably with other players in the industry. 

Even so, you should focus on improving your retail experience rather than chasing after your competitors.

There are several competition-related risk drivers that you should know about and address. These include lack of motivation, inability to adopt new technologies, inefficient inventory lifecycle management, and the inability to adapt to the ever-changing customer landscape.

When you address these risk drivers, it will be easier for you to mitigate competition risk. 

Supply Chain Failure

The COVID-19 pandemic has proved to the world just how fragile the global supply chain is.

Retail stores have been on the receiving end for failing to stock or deliver products ordered by customers due to failures in the supply chain. Even though supply chain failure is primarily an external risk, there’s so much you can do to mitigate it. 

For instance, proper forecasting of sales can help you predict what customers will buy, thus preventing product shortfalls.

By qualifying more than one supplier, you will be able to plug supply deficits in case the primary supplier fails to deliver on time.

Furthermore, consider adopting an automated system that helps you to review the available stick in your stores. This way, you’ll be able to meet an increase in the sales of different products. 

Reputational Risks

In the retail sector, reputation is everything. The reputation that you build for yourself greatly determines whether customers will buy from you or not.

Whether you have an online or brick-and-mortar retail store, you always have direct contact with your customers. Any shortcomings in customer satisfaction affects your store’s reputation significantly.

Here’s what you can do to mitigate reputational risks: 

• Conduct regular customer satisfaction surveys to foretell their needs and expectations

• Establish a customer care team to address customers’ complaints and inquiries

• Provide adequate customer care training to all employees

• Create a policy for addressing negative comments on social media and elsewhere about your store and its products

Poor Storage of Goods

Many retail stores are guilty of storing their goods in poor conditions.

This affects the longevity of the goods besides making it difficult for you to deal with emergencies such as fires.

You can mitigate this risk by complying with government and manufacturer regulations concerning the storage of the goods that you sell. Likewise, review the storage conditions of the goods under storage.

A comprehensive insurance policy will help you protect business against unforeseen disasters such as fire or flood damage at the warehouse. 

Final Words

The retail sector is vulnerable to multiple risks, which should be addressed to prevent potential losses. As a retail owner, the onus is on you to implement sufficient and effective procedures and policies for mitigating those risks.

About the author

Jordan MacAvoy is the Vice President of Marketing at Reciprocity Labs and manages the company’s go-to-market strategy and execution. Prior to joining Reciprocity, Mr. MacAvoy served in executive roles at Fundbox, a Forbes Next Billion Dollar Company, and Intuit, via their acquisition of the SaaS marketing and communications solution, Demandforce.