How retailers can beat the January blues

UK retailers are preparing for a tricky first quarter trading period as consumers tighten their belts following the festive period. High street shops must contend with lower consumer spending as well as squeezed margins from rising inflation and increasing utility bills.

Some retailers are using overdrafts, supply chain finance (SCF) and internal cash generation to protect their cashflow. However, many are ignoring their biggest expense – payroll.

As the January spending slowdown is upon us, retailers need to get creative and look how additional financial levers could help them preserve cashflow and avoid expensive debt.

A costly Christmas hangover
Christmas is typically the most profitable time of the year for retailers and while this year was expected to be tough, Ocado reported record Christmas sales but noted that customers were buying fewer items.

The cost-of-living crisis is expected to have an impact and retailers are bracing themselves for customers to seriously tighten their purse strings.

Particularly because this Christmas was more expensive than previous due to inflation. The Consumer Prices Index (CPI), which measures the change in average prices paid by consumers based on a representative basket of goods and services, rose by 10.1% in the past year, highlighting that products are becoming more expensive.

While recent data from Barclaycard has shown a 3.9 per cent in consumer spending year on year in November, this is mostly due to the increasing cost of essentials. A closer look at the data reveals that cold weather essentials proved popular in light of increased heating costs.

The drop in meaningful consumer spending coupled with the economic uncertainty of the cost-of-living crisis has left retailers in a precarious position in 2023. As businesses continue to feel the squeeze, many are looking for new ways to improve their cashflow.

Banks tightening lending criteria
Recent research highlighted that three-fifths of SMEs said they currently need funding to ease day-to-day cashflow issues and retailers are no different. In times of need, many businesses turn to the banks.

However, businesses are increasingly struggling to get loans. Over half of the 500 business leaders surveyed said they think banks are too slow in assessing business loan applications and just under half felt that they are reluctant to lend to smaller business.

The inflexible attitude of the traditional banking system is causing huge issues for firms which need access to finance to survive and grow. Cash is the lifeblood of businesses and banks are failing to provide the necessary support. It’s time for businesses to look elsewhere.

Boosting business confidence
One way UK retailers can improve their cashflow without incurring loans is by exploring fintech alternatives, such as financing payroll.

Businesses can finance payroll for months and release cash back into the company, boosting cashflow by funding what is often their highest expense. This money is then made freely available to the employee as they earn it, smoothing their cashflow and eradicating the feast or famine cycle of monthly play.

A recent study found that businesses have experienced a drop in productivity due to employees feeling the burden of financial stress. A flexible payment policy can improve companies’ productivity levels by enhancing the financial flexibility of employees. They can also use flexible pay during the festive period instead of incurring their own debt or using buy now pay later schemes.

During a challenging post-Christmas trading period, it’s vital that retailers protect cashflow. With the banks unwillingness to help, they need to explore alternative offerings such as financing payroll to unlock cashflow during this critical time.