Tackling Retail Turmoil: How to Preserve Profits in Tumultuous Times

Times are tough for retailers. The convergence of inflation, squeezed margins, continued supply chain challenges, and cybercrime is changing the playing field. The culmination of these factors has created the perfect storm of complete turmoil for retailers.

As retailers try to protect their bottom line, many are turning their attention inward to see how they can lower their overall expenses. These businesses are looking for ways to do more with less. And they’ll have to find ways to streamline operations if they want to continue to optimize the customer experience, preserve profits, and survive the storm.

Inflation is Up

Inflation has grown at its fastest pace in four decades. As consumers face higher prices at the gas pump, grocery store, and other places, many are cutting back on their spending. Some are prioritizing experiences they missed during the pandemic — e.g., indulging in a dinner or vacation instead of buying merchandise. Generally, however, consumers are cutting back on purchases of non-essentials to ensure they can afford food, gas, rent and utilities.

For the non-essentials that customers are buying, there’s more competition in the market, meaning retailers have to either be the cheapest or provide the best experience for their customers. With the other problems e-commerce stores are currently facing, neither is an easy ask.

Margins Are Shrinking

Big-box retailers recently shared that quarterly profits fell as much as 90 percent from a year ago. Steep markdowns on unwanted merchandise weigh on their bottom lines. A lot of companies that can differentiate on price are winding up taking big margin hits because they're trying to keep prices under control for consumers.

In addition to lower prices, major retailers like those mentioned above are seeing higher inventory due to canceled orders and lower sales overall as customers focus their spending on essentials. For example, the value of Home Depot’s inventory is projected to grow to $25.3 billion in the first quarter of 2023, almost a 32 percent increase from its value in the first quarter of 2022. And any of these products that the business can’t move eats into its margins.

Supply Chain Shortages Are Worse

Economist George Alessandria said that supply chain shortages are the worst that they have been in 50 years — and they’re probably going to get worse because China has been shutting down cities and production facilities. Because many customers don’t want to wait weeks or months to get their items, they’ll often cancel orders, leaving retailers holding the bag and trying to find other buyers for the abandoned products. To offset this challenge, many retailers are overstocking on high demand items only to end up having to discount them heavily to clear them off shelves.

In addition to closing plants and COVID-19 restrictions, the Great Resignation has led to staffing shortages meaning manufacturers can’t produce as many products as they could pre-pandemic. Until they can offset that discrepancy, supply chain issues will continue.

Cybercrime is Out of Control

Many e-commerce retailers are experiencing a tremendous increase in automated fraud. Cybercriminals leverage bots to steal credit card numbers or customer logins and commit automated attacks, such as account takeover (ATO). These attacks cause severe damage to retailers, harming their brand and reputation, eroding customer trust, and hitting them financially.

As we get into the holiday season, cyberattacks will only grow in number. Last year, Kasada threat intelligence research found that malicious login attempts increased tenfold during the holidays. As of August 2022, Kasada threat research uncovered accounts, gift cards, store cards, or bypasses listed for sale on criminal marketplaces from 54 percent of retailers. This means approximately one out of every two e-commerce businesses that customers shop at is putting their personal information at risk. In addition, a new type of “Solver Service” is widely available. Solver services “solve” a company’s bot management system and bypass the security defense allowing threat actors with little or no technical skills access.

What Can Online Retailers Do to Weather the Storm?

Many of the online retail customers that we work with are creating successful recession strategies. Some of the steps they’re taking include:

• Cutting inefficiencies: Online retail is a fast-paced industry, and many e-commerce sites are under pressure to process orders quickly and deliver packages as fast as possible. To increase productivity, many organizations are looking to streamline their operations. Automation is a great way to save time, effort and costs without dramatically increasing the workforce.
• Taking a proactive approach to the customer experience: After the pandemic, numerous online businesses woke up to find that those that didn’t make security and user experience changes fast enough got left behind. Companies now see proactive, frictionless application and API security as a business driver. This is causing them to move away from static security solutions that don’t regularly change their defenses to stay ahead of attackers’ speed of innovation — and move away from solutions that impede the user experience, such as CAPTCHAs. Instead, they seek proactive, invisible approaches to stopping bots that adapt as fast as the attackers working against it.
• Using “set and forget” automation to stop cyberattacks: Companies are embracing a “no management” approach to stop cyberattacks and augment their staff due to the cybersecurity talent shortage. Previously, companies may have used a bot management system that required enormous amounts of time to optimize and configure. This new approach enables businesses to keep moving forward without the limitation of finding talent that isn’t available, while eliminating the economic incentive that motivates attackers. The total cost of ownership for stopping automated threats can drop by more than 70 percent as such.

The key for retailers to survive this perfect storm is to take action and automate where possible. They may not be able to solve the supply chain issues on their own, but they can automate inventory processes to order and deliver products to customers in a timely manner. Automation can improve margins by lowering operating costs. And when operating costs go down, businesses can pass some of these savings onto their customers to offset the drag caused by inflation.

Retailers can also automate their cybersecurity defenses to stop bots from stuffing credentials to take over customer accounts and commit fraud. At the same time, they can reap the benefits of keeping their websites safe from malicious automation that steals online assets and undercut pricing, while becoming more operationally efficient with their cybersecurity defenses.

Neil Cohen is the chief marketing officer of Kasada, a company that stops automated threats and bot attacks from the very first request across web, mobile apps and APIs.