Investment Strategies for Retailers to Secure Long-Term Profitability Amid Economic Uncertainty

The retail industry is a marathon, not a sprint. While retailers and brands can’t risk falling behind their competitors in the short term, they also must plan for the long haul. To achieve this, investments must be made in areas that improve customer retention and conversion and reduce operational costs over the long term.

However, today’s e-commerce retail racecourse is scattered with countless obstacles, making it difficult for decision makers to determine where their attention (and dollars) should go next. Faced with constantly evolving customer expectations, shrinking margins, fierce competition, and economic headwinds, retailers are facing an uphill battle, evidenced by the slowdown of e-commerce growth last year. According to a Publicis Sapient survey, 37 percent of retailers say e-commerce isn’t meeting their profitability targets.

In a race, athletes make strategic decisions about when to conserve energy and when to push. Similarly, retailers and brands must carefully and deliberately allocate resources to yield the greatest returns. In particular, by refocusing efforts toward existing customers, engaging customers in new ways, and optimizing inventory and fulfillment, retailers can drive profitability and ensure long-term success.

3 Investment Areas to Drive Profitable Retail Growth in the Long Term

In the face of economic uncertainty and shrinking budgets, retailers and brands clearly need to focus their investments on areas that are most likely to drive profitability. Differentiating themselves from other e-commerce brands requires new ways of thinking and a more strategic approach.

So, where should you place your bets? Here are three key areas to invest in to maximize profitability:

1. Focus on existing customers.

With the cost of digital advertising continuing to rise, it’s no longer financially sustainable for brands to drive growth by buying new customers via social media ads or other costly marketing channels. Instead of competing for ad space in a crowded retail environment (and at a time when shoppers are already more purchase adverse), consider prioritizing your existing customer base.

Acquiring new customers will, of course, remain critical, but it’s expensive in the short term. A smarter approach may be to instead focus on strengthening customer loyalty. Offering exclusive promotions, presenting a seamless customer experience across channels, and creating personalized messaging and product recommendations go a long way toward improving customer loyalty and creating brand advocates. In exchange for these types of offerings, you can incentivize current customers to share valuable first-party data so you can further optimize their experiences with your brand.

2. Identify innovative ways to foster customer engagements.

Ever go to a new brand’s website and get retail deja vu? In a world of lookalike brand websites, get creative — and experimental — to stand out and create e-commerce experiences that wow and excite shoppers.

Creative engagements can take the form of conversational commerce, live shopping, and conditional content, where you ask customers questions to help tailor their shopping experiences, profiles and preferences. Virtual store walkthroughs, personal shoppers and informative video content offer additional opportunities to engage and reengage consumers.

In general, providing more personalized experiences encourages customers to convert and come back for more. But don’t forget to continually test and measure the success of your new engagement methods so you can iterate and improve.

3. Prioritize inventory management and order fulfillment.

We’ve all felt the disappointment of discovering a product is out of stock at checkout — or the feeling of confusion when we have no clue when the product will show up. At best, it’s a demoralizing experience. But in a worst-case scenario, these kinds of snafus can send customers running to a competitor.

Clearly, inventory and order fulfillment excellence are essential elements of the customer experience. Therefore, in today’s retail marketplace, you need to know where your inventory is at all times and how much product you have left to avoid disappointing shoppers. To improve long-term profitability, invest in tools that increase visibility into your real-time inventory and make demand planning more efficient. Finally, to set your brand apart, unify inventory across all platforms and make fulfillment a top priority.

The road ahead for the retail industry may look uncertain, but the right investments ensure you remain prepared and agile. By prioritizing your existing customers, engaging with customers in innovative ways, and improving your inventory and fulfillment standards, you can build lasting loyalty, drive profits and navigate challenging times with greater confidence.

Jordan Jewell is the analyst in residence at VTEX, an enterprise digital commerce platform.