How retailers can navigate the shifting global economy in 2022
Diversified supply chains, use of automation technology and hybrid working models are key tactics for adapting to a post-covid world.
Well, I think we can all agree that the world has fundamentally shifted beneath our feet over the last couple of years! There have been peaks and troughs throughout the imposed lockdowns and restrictions, and rising inflation has unceremoniously gate-crashed the party. It’s been a challenge for sure. However, change can also act as a rebalancing and revitalising force in due course.
Let’s have a look at the macroeconomic forces bringing about a new world economy, with the help of insightful reporting from Landfall Strategy Group. With informed strategies, we can put our businesses in a strong position to successfully ride out the rest of the storm.
How has the economy changed?
There is a strong global economic recovery underway, although not without changes, especially for developed economies.
Covid restrictions and inflation are playing a fundamental role that is still in flux. Greater economic and political uncertainty mean that the potential for higher inflation, higher interest rates, ongoing supply chain and labour market disruptions can’t be ruled out. The writing on the wall indicates that uncertainty is par for the course throughout 2022 while permanent structural changes take place.
Manufacturing & export structural shifts – Chinese production costs and wages have increased during lockdowns, plus there’s been a decline in the working-age population exacerbating export contractions. Chinese borders are likely to remain closed for at least another year, preventing business visits. On top of that, geopolitical forces have seen China’s prominence decline further due to strategic rivalries from countries like the US. This has resulted in a reduced reliance upon China, with a number of other emerging markets stepping in to pick up the slack. FDI and exports in other emerging countries such as Vietnam are growing rapidly in response. However, it will take time for improvements in transport and business infrastructure in these economies, as well as improving workforce skills and supply chains.
Consumer spending in flux – There have been notable changes in consumer demand as private consumption spending experienced volatility. Consumer services have taken the strongest hit, while spending on non-durable goods has remained most consistent, and durable goods spending has seen some acceleration.
Shipping is slowly recovering – As the global trade in goods has picked up again, shipping container movement has improved with it. The shipping pressures are gradually easing off, although waiting times in ports and container shipping prices are still higher than before. This should improve further during 2022, as consumer demand moves back towards services rather than goods, reducing shipping backlogs. Although Australia and New Zealand may be the last to see an easing because of their location.
Labour market reallocations – The employment rate in advanced economies has recovered to near pre-covid levels. Employment in Accommodation & Food Services is still weak, while Construction, Transportation & Warehousing leads the way. However, some people have been lost from the labour market, pushing up wages. Wages have grown beyond 2019 levels in the UK and US, although not for Australia. Worker expectations have also changed, with more people looking for increased flexibility using hybrid and remote working models.
How can we adapt to these changes?
It’s time to adjust to operating in a structurally different, post-Covid world. Consumer preferences, staff expectations and business models have all substantially changed over the past 18 months. Covid in endemic form will be with us for some time, and building business resilience to cope with a range of scenarios is prudent.
In the same breath, there are substantial opportunities available. Economies are growing strongly, household finances are in good shape, and new technologies offer new opportunities. Adapting quickly to the new environment will provide a big competitive advantage.
Build supply chain resilience - Many large firms are diversifying production into Vietnam to help reduce reliance on China, especially with the growing political tensions. It will take time for production capabilities to grow elsewhere, but getting ahead and developing new relationships in other export markets is a forward-thinking strategy. On top of that, regionalising supply chains, diversifying vendors, and stockpiling larger inventories for riding out temporary disruptions will help.
Offer staff incentives – Prepare for a more competitive labour market for the long haul. Look for ways to automate, streamline and up productivity in order to maintain your margins, unless you are in a position to pass on higher costs to customers. There has been accelerated uptake of technology that uses automation and AI in many sectors as a means of reducing reliance on labour and keeping costs manageable. In addition, providing staff incentives such as training, career development, and hybrid working models will help to retain valuable staff. This should also help you find productivity boosts.
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