Retail Trends Check: What’s New and What To Do

Inflation

Inflation has been impacting consumers across the G20 countries. It varies by region but recent data indicates it is high across many countries:

• Australia – 7.8%
• Euro area – 6.1%
• Japan – 3.2%
• United Kingdom – 8.7%
• United States – 4.1%

It is starting to fall and is forecasted to drop further in the coming months and years, but at this moment in time retailers and consumers are still suffering.

Graph courtesy of IFO Institute

What it means for retailers

Increasing costs and margin pressure

Costs are up across the board. Labor costs, energy costs, global supply-chain costs and inventory costs have all increased. This has placed greater pressure on margins and given retailers a clear dilemma – put prices up to maintain margins or adjust minimally to protect consumers. Each choice comes with consequences and may depend on what goods are being sold and a retailer’s commercial position.

Savvy shopping

Consumers are making switches to help them save money. Grocery inflation has been particularly high and has resulted in some specific consumer behavior as some KPMG research discovered.

Non-essentials have taken a hit and shoppers are spending more time searching for bargains and discounts.

Scandit insight

• Retailers that find ways to make operational savings will be more able to absorb potential cost increases by sacrificing some margins to protect consumers. This will build trust and give shoppers more motivation to be loyal.
• Better use of existing assets and technology can help retailers make efficiency and productivity gains to control costs.
• Spending time re-examining category strategies can pay dividends. Knowing which items are most affected by inflation and pairing that data with customer preference data allows retailers to stock in-demand items at a lower cost.

Store Strategy

Store openings outpaced closures in 2022 but the trend has stalled in 2023. Some online pure-play retailers are opening their first stores while others with a heavy brick-and-mortar presence are consolidating theirs.

Dozens of major US retailers said they will close a combined total of 2,373 stores in 2023. Business Insider

What it means for retailers

Channel diversification

Having an omnichannel presence and meeting shoppers where they are will continue to deliver results.

By expanding and diversifying their mix, retailers can reach new audiences and increase loyalty with existing customers. Store numbers and locations face increased scrutiny while partnering with the right online marketplaces like Farfetch for luxury fashion could prove lucrative.

Experiential retail

Part of the store strategy also involves finding ways to make shopping more experiential, allowing brands to connect more with customers. Unique and engaging experiences will help to drive footfall to those stores and build stronger connections that enhance loyalty.

Scandit insight

• Experiential has to be meaningful. The complexity of some stores can confuse customers and get in the way of the reason they have visited – to buy something. Analog experiences supported by digital elements look to be the best way to generate interest, appeal and revenue.
• For retailers with a higher ratio of associates to customers (e.g. luxury), focus on how the associate can play a bigger role in the customer journey and how digital tools and data can create more meaningful interactions.
• For retailers with a lower ratio (e.g. fast fashion), using customer or loyalty apps can be a way to scale up personalized experiences without requiring the support of an associate.

E-commerce penetration slowdown

Since Q3 2020 e-commerce has seen very little growth as a percentage of all retail sales. Data from the US Census Bureau shows that it has remained flat at around 15%.

Data and graph from the United States Census Bureau

While the ratio of e-commerce to total retail sales has decreased, it is important to note that the absolute growth of e-commerce is climbing as total retail sales are up. There are signs in Q3 2023 that the trend line seen prior to the pandemic is starting to reappear.

What it means for retailers

Physical retail isn’t going anywhere

2021 was the first year the growth of e-commerce was slower than physical retail. Shoppers rushed back to stores as the pandemic eased. This is evidence that tangible benefits are hard to beat and that shoppers enjoy going to stores. When something is needed, stores are the fastest route to instant gratification.

The in-store experience is key

Seeing, touching and smelling items, connecting with people and having a seamless experience will help keep physical retail at the top of the charts. With footfall remaining high for some retailers, a great in-store experience can be key to keeping people returning.

Scandit insight

• Retailers must ensure a seamless omnichannel offering to avoid customer dissatisfaction. Some retailers, like grocery, will continue to experience pressure on in-store order fulfillment. Optimizing this process will help manage existing and future increases in demand for Click & Collect or Ship from Store and free up workers to support in-store shoppers.
• Even though shoppers are buying more in stores, pre-purchase research is still heavily weighted toward online. Retailers need to ensure they don’t abandon their online presence.
• Consider a hybrid store model that merges the information and convenience experienced online with the tangible nature of stores. For example, accessing stock information in store or conducting mobile point of sale (mPOS).

Labor shortages

Frontline retail workers have been re-evaluating their positions over the last few years. Titled ‘The Great Resignation’ or ‘The Great Attrition’, workers have been leaving their roles at an increasing rate and retailers have been struggling to fill them.

What it means for retailers

A greater strain on those that remain

Combined with the need to complete a wider variety of tasks that now include order fulfillment and online returns, for example, frontline retail workers are under pressure. With physical retail showing no signs of letting up, completing daily tasks is a challenge. Affecting bottom lines as the quality of customer service reduces and stockouts hit the shelves.

High store associate turnover

The realities of daily work are making employee retention in retail difficult. Many industries are competing for the same workers, especially during peak periods. And with younger generations making up a bigger percentage of available workers, their concerns over flexibility, pay and rewards are reducing the number of workers entering retail.

Scandit insight

• The provision of the right tools can play a big part in worker satisfaction. Unburdening them from tedious tasks and giving them tools that they want and expect to use can help. Mobile devices are familiar and easy to use and can be positioned as a perk with the right device strategy.

• Finding ways to speed up and smarten existing processes, so error-prone and time-consuming tasks are less reliant on workers will reduce the strain. Using automation where appropriate and identifying where workers can add the most value will improve satisfaction.

Supply chain disruptions

Geopolitical tensions, shipping delays, port congestion and rising costs are all contributing to supply chain disruptions. Enhanced customer expectations around product availability and delivery speed compound these disruptions. A resilient and diversified supply chain that enables customers to shop how and when they like is high on the agenda.

What it means for retailers

Inventory issues

Disruptions make forecasting and meeting demand challenging. To mitigate this retailers are holding more stock to prevent stockouts. However, this ties up substantial amounts of cash.

Holding more stock involves storage costs, and longer lead times are reducing the ability of retailers to react quickly to changes in demand and keep up with new trends.

An emphasis on substitutions

Substitution solutions are more important than ever so shoppers still feel like their needs are being met when their preferred product is unavailable. This can keep sales moving and ensure customers remain loyal.

Scandit insight

• Inventory visibility is paramount. While some supply chain disruptions can be out of the control of retailers, having an accurate real-time view of stock levels will help with planning, forecasting and replenishment of shelves.
• Making this data available to workers and customers gives them the knowledge of what is in stock where and what can be purchased.
• Mixing passive and active demand forecasting to see what is happening in stores and the wider economy can assist with the delicate inventory balance.