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A Comprehensive Checklist For Recession-Proofing Your Ecommerce Operations
As pretty much every headline will tell you, 2023 will be financially rough for everyone – especially for retailers.
Midway through 2022, inflation hit a 40-year high. And economists have been speculating on when (note: not if) a recession will hit ever since.
A lot of retailers are concerned, and rightfully so. In fact, a recent Shopify ecommerce trends report found:
In other words, even if we narrowly avoid a recession, you can expect this year to be tough. To survive, brands need to go – as CROSSNET’s co-founder Chris Meade puts it – “sink or swim mode.”
That’s why we’ve created this comprehensive checklist (complete with tactical how-to’s, tool recommendations, and free templates) to recession-proof your operations and keep your brand afloat in 2023.
The term “recession-proof brands” often describes those that can expect steady revenue amid economic turbulence. As such, it is widely accepted to reference retailers that sell “consumer essentials” (think: Tide, Arm & Hammer, Colgate).
However, selling essentials is not what makes a brand recession-proof (although it typically makes surviving the downturn easier).
No – quite literally, a recession-proof brand is any business that operates at a profit or can subsidize losses with cash reserves long enough to enjoy an economic upturn.
Put more simply, recession-proof brands operate smartly, leanly, and efficiently, and they can bootstrap if needed.
Think about it: A recession is often considered the worst time to start a business. Yet, during the Great Recession, ecommerce retail saw rapid growth with the launch of Warby Parker, Bonobos, and the like.
That’s because these direct-to-consumer (DTC) brands rethought traditional retail, allowing them to operate faster and at a reduced cost thanks to smaller product portfolios and fewer middlemen.
Fast forward to today, and 20% of retail sales happen online for these reasons.
That said, we’d be negligent to ignore that both Warby and Bonobos enjoyed eye-watering raises during the Great Recession ($500k and $757k total, respectively). This outside funding significantly helped these new brands find footing amid the economic turmoil.
Today’s brands do not have this same luxury, seeing as venture capital has dried up for DTC brands.
However, Microsoft and Trader Joe’s were also founded during recessions and achieved profitability with (comparatively) little to no VC funding by focusing on their bottom line. (Until 2022, Microsoft had only raised $1M in a 1981 seed round; Trader Joe’s was bootstrapped from day 1.)
Whether Warby and Bonobos will survive an upcoming recession without outside funding is yet to be seen. (Bonobos will likely survive thanks to Walmart’s acquisition, but the now publicly traded Warby still had no clear path to profitability, which could spell trouble.)
But Microsoft and Trader Joe’s have survived several already, proving that the secret to recession-proofing your brand isn’t necessarily selling essentials (or securing outside funding). It’s optimizing your operations.
Here are 7 proven actions brands can take right now to make staying afloat, recession-proofing, simply surviving – whatever you want to call it – easier in 2023:
Chances are good that you already have a tech stack of some sort. But similar to replacing your phone with a newer model, it can pay (in this case, literally) to update your tech stack routinely.
First thing first, what do you actually need in your tech stack? Generally speaking, you’ll want to automate (or at least streamline) 8 core functions of your business: finances, supply chain, order fulfillment, packaging, inventory, marketing, customer retention, partnerships, and customer interactions.
With that in mind, some favorite tools among ecommerce headliners include:
We know – we just named a lot of tools. Not every brand will need every recommended tool on this list. And you don’t need to go out and replace your entire tech stack. If the platform you use works for your brand, that’s all that matters.
That said, Intuit found that 93% of businesses admit to paying for digital tools they outgrew or features they don’t use. And these unnecessary expenses add up quickly. So, start by canceling any app you haven’t touched in 3+ months (likewise, if you haven’t used an add-on feature in that timeframe, downgrade accordingly).
From the remaining tools, identify gaps in your tech stack. Meaning, where in your everyday operations could technology make your business run more efficiently? That’s where you’ll want to (possibly) adopt a few new tools.
The list above should give you a solid starting point, but conduct your own research to find the best tool for you.
🔥 Tip: Find tools that integrate with one another or use Alloy to build the connection. This allows all your systems to work together, increasing productivity and ensuring data consistency.
As a retail operator, you’re likely no stranger to standard operating procedures (SOPs). AKA, the step-by-step instructions that guarantee consistency across your brand’s everyday operations.
This is two-fold. For one, all your processes need to be documented. Without this documentation, everyone has unwritten permission (literally) to do the work “their way,” which leads to less quality control, less efficiency, and higher safety risks.
Ideally, you want all these processes documented in one centralized place that anyone on your team can reference at any time. For instance, here at Cogsy, we use Notion for this.
And two, once these processes are documented, you must periodically update your standard operating procedures to ensure their accuracy and relevancy. And the new year is the perfect excuse to correct any outdated documentation.
This can be as simple as having every stakeholder read the documentation they’re responsible for to quickly confirm that it’s still up-to-date. If they find anything that’s outdated, they can quickly update it.
So, what operational processes do you need to have documented (and need to update regularly)? Minimum, this includes your:
Many decisions (especially when you should place POs) rely on your order lead times. And while lead times used to be somewhat reliable, that is no longer the case due to ongoing supply chain disruptions.
In 2021, some brands saw lead times as long as 6 months (a 3x increase from the 2019 average). And while lead times have somewhat shortened, they are still nowhere near their pre-pandemic speed or reliability.
Take the ongoing Russia-Ukraine crisis, for example. The political unrest has created a supply chain reaction, disrupting transit routes and making many raw materials less available (and expensive as a result).
Because of this, you need to regularly recalculate your order lead times. And the new year provides the perfect opportunity to do this.
Specifically, you’ll want to focus on your quoted and actual lead times from 2022:
📝 Note: Your order entry date is when you submitted your PO. Your quote date is when suppliers said they’d deliver your shipment and is found on the corresponding invoice. Your delivery date is when that shipment actually arrived at your warehouse and should be recorded in your inventory management system.
But why bother calculating your lead times if they’re bound to change? Because with these numbers, you can submit POs with plenty of time to avoid a stockout. That’s because you can anticipate (and quantify) supply chain delays.
For instance, say your supplier consistently quotes a 6-week lead time. But your actual lead time with this supplier has lately been 8 weeks on average. Then, you know to submit your POs ~2 weeks earlier. This creates a buffer period that’ll allow you to safely avoid a stockout (without placing POs so earlier that you risk accumulating dead stock).
As the economy takes a turn, so have consumer preferences. Suddenly, impulsive discretionary purchases (like those that fueled the pandemic’s ecommerce boom) aren’t looking so hot. Instead, increasingly cost-conscious consumers are opting for high-value, competitively-priced products.
That’s where reviewing your product catalog comes in.
This exercise ensures that you offer customers the most relevant and in-demand products, so you can stay competitive. How? By identifying your bestselling and underperforming products. That way, you can make more informed decisions about managing (and marketing) your product catalog in 2023.
For instance, maybe you start offering product bundles featuring your bestsellers to boost your average order value (AOV). Or, perhaps you reposition your slowing SKUs to highlight those products’ value or spin up one-off campaigns to increase customer demand for these products. Or maybe it’s time to sunset a few stale products that are no longer turning a profit.
Likewise, reviewing your existing product catalog can help you identify opportunities for new product offerings, which diversifies your product catalog. (For instance, by reviewing Abbott’s product catalog, its CEO Jose Alvarez realized they could also start offering their bestselling candle scents as perfumes.)
By diversifying your product catalog, you can serve a wider audience, increasing your market potential. But you can also mitigate risk by reducing dependency on a single product or product category.
You can effortlessly identify your bestsellers and stale offerings by ranking your products in Cogsy.
Cogsy can then use your historical sales history, current inventory levels, and future demand forecast to verify that you are adequately stocked on each SKU. That way, you can strategically shed overstock and prevent stockouts.
👉 Prefer to review your product catalog manually? Our free inventory prioritization matrix template can help you identify your bestsellers and slowest movers. Just be prepared to update this matrix monthly, if not weekly, for the most up-to-date results.
Most brands aim to audit their inventory at the year-end. But this isn’t always feasible with so many folks out on holiday and increased seasonal sales. So, the better bet is a year-start inventory count (once everyone is back to work).
This means manually counting how many units you have available for every SKU. Then, cross-check that number with your inventory records. If they don’t match, recount. If they still don’t match, document the discrepancy.
Feeling too understaffed or busy for this initiative? Spot-check your inventory instead. Meaning, take stock of a few SKUs (for instance, an aisle in your warehouse or a product line). Then, next week, take stock of a few more SKUs (the next aisle or a different product line). Wash and repeat until you get through your entire inventory. At that point, start over.
📝 Note: If you find big discrepancies while spot-checking, you’ll need to audit everything – regardless of your available human resources. Why? Because this is likely a sign of a deeper inventory problem that you’ll want to get ahead of.
Wondering why you should bother with a full manual inventory audit when you can spot-check? Sure, spot-checking can provide the same inventory accuracy as a full audit. This is why brands should run spot checks weekly (or monthly) throughout the year to maintain this accuracy.
However, the full manual stock count identifies potential issues faster (because you wrap up the process in a week rather than months). And at the start of a new year, you definitely want to fix any residual inventory issues from last year ASAP.
Better yet, take this audit as an opportunity to position your brand to hit (or exceed) your 2023 revenue goals. How? By not just validating your stock records but optimizing your inventory levels to keep costs down and sales up.
To do this, calculate your minimum and maximum inventory levels for each SKU using the following formulas:
With those numbers calculated, check that each product count falls between its minimum and maximum inventory levels.
If your inventory count sits under the minimum, get a purchase order in like yesterday to avoid a stockout. (You can also start drafting a PO for items approaching their reorder point.)
🔥 Tip: A purchase order template can radically speed up the replenishment process.
If your inventory count exceeds the maximum, create a strategy to offload the excess inventory. For instance, you can try offering product bundles, running a flash sale, or offering that item as a free gift when folks spend over a certain amount.
Knowing what’s coming is one thing. Actually, preparing for it is a whole different thing. That’s why demand forecasting for 2023 is great, but building a 12-month demand plan is even better.
Where a demand forecast predicts how many consumers will be interested in buying your products in 2023, your 12-month inventory plan outlines how you’ll fulfill that forecasted demand. This includes determining how much of each SKU you’ll need, where, and when.
With this plan in hand, your brand can ensure it has the resources needed (like budget and supplier availability) to avoid potential pitfalls (stockouts, tied-up capital, and unnecessary holding costs included).
But to be blunt, your inventory plan is only as accurate as the forecast it’s built on. To ensure your forecast’s accuracy (regardless of if you’re using Excel or forecasting software), make sure you’re projecting from the bottom up.
Meaning, use your sales history and real-time inventory trends to determine the baseline stock levels your brand will need in 2023. Then, cautiously layers key growth assumptions (like how much lift a scheduled marketing campaign will have) onto that solid foundation.
Once you have that forecast, it’s time to compare it to your current inventory levels to determine when you’ll need to place your next purchase order.
🔥 Tip: Similar to the weather forecast, your demand forecast gets less accurate further out. So, to maintain accuracy, you’ll need to continuously monitor and adjust your inventory plan throughout the year as new information is introduced.
Alternatively, Cogsy can build this demand plan with pinpoint accuracy in seconds (complete with restock recommendations to help you prevent stockouts and overstock). You can even run best-case, worst-case, and most-probable scenarios within the inventory plan to ensure you’re prepared for anything.
Once your plan is built, Cogsy will monitor your stock levels 24/7 and automatically update this plan as things change. That way, you always work with the most up-to-date information and implement the smartest course of action.
Along with everything else, the price of raw materials is skyrocketing. In fact, as of June 2021, The Raw Material Price Index was up 18% YoY. And someone along the supply chain has to eat these added costs.
Most suppliers, however, have decided it won’t be them. And as a result, suppliers are increasingly raising prices for retail brands.
In response, brands can:
But the last option (negotiating vendor contract terms) is typically the best long-term play to retain customers and ensure viability.
Locking in a lower vendor price comes down to understanding 2 things:
With this in mind, ask your supplier to renegotiate your contract and be clear that you want to discuss terms for 2023 (not just your next PO).
Then, on the day of the negotiation, show up with your 12-month inventory plan. By sharing what products, how much, and when you’ll need, you can prove to your supplier that you’re looking to build a long-term partnership that both parties can rely on.
Then, promise to place a certain number of these orders with the supplier in exchange for a lower price. (Make it clear that you will not be placing down payments for these orders upfront but will do so as you submit individual purchase orders throughout the contract.)
But say your vendor can’t go lower on price. You can alternatively ask for more favorable terms that would free up your working capital, such as a smaller down payment or longer net terms for paying invoices.
Does this really work? Sure does – New York-based baby and toddler retailer Lalo lowered their down payments by 50% in 2022 by sharing the inventory plan they built in Cogsy with their suppliers.
But what if my supplier says no? No worries! That’s when it might make sense to rate shop other providers, raise your prices, or adopt a flexible financing option like Settle.
You probably noticed a common thread: Cogsy makes recession-proofing your brand easier. That’s because the only demand planning tool that offers brands predictable inventory management in an unpredictable world.
With it, get a godlike view of your stock levels, restock needs, incoming purchase orders, and upcoming marketing events. All in 1 place. Plus, you can forecast demand with pinpoint accuracy (up to 12 months out), so you can stock up accordingly.
You can even run “what-if” scenarios to identify your best-case, worst-case, and most-probable inventory strategies. That way, you avoid expensive mistakes (like stockouts and excess) that keep you from reaching your revenue goals.
In fact, brands like Lalo use Cogsy save 20+ hours a week and generate 40% more revenue on average.
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