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The state of retail, and the global economy as a whole, is entering a time of both hope and uncertainty. As countries around the world continue to recover from the COVID-19 pandemic, there’s been a concerted push to return to “normal.” But what will that normal look like, now that so many customers have had to adopt digital communication, remote services, and mobile technology on an unprecedented level?
According to a recent study, retail was found to be the leading industry for increased digital adoption by consumers, with remote purchases for goods like apparel increased by 40% and others, like groceries, up to 100%. The digital genie is out of the bottle, so the question isn’t should, or even when should, retail companies invest in new technologies — it’s what is the best way forward?
Rising prices and growing inflation further complicate things, forcing retailers to be more fluid with their pricing and promotional decisions in order to maintain customers’ loyalty. And supply disruption remains a concern, leaving companies with either too little inventory or a surplus due to overbuying, leading many to rethink their procurement and order fulfillment strategies.
To help you navigate this uncertainty and make strategic decisions about what to focus on, let’s take a look at what are shaping up to be the most important retail trends for 2023.
1. Brick-and-Mortar Sales Continue to Rebound, but eCommerce Remains King
Brick-and-mortar stores are still an important part of the retail experience and, after over a year of staying at home, customers are eager to go shopping again. Though still strong, eCommerce sales volumes declined in 2021, down from 31.8% in 2020 to 14.2%. They fell even below brick-and-mortar sales volumes, which reached 18.5% in 2021.
As COVID-19 case counts continue to decline across the country and around the world, we can expect brick-and-mortar sales to continue to increase; however, it’s unlikely that they’ll ever fully return to pre-2020 levels. The primary reason for this is that customers have become accustomed to — and, in many cases, actively prefer — online shopping. According to a survey from the UN Conference on Trade and Development, online purchases by consumers were found to have increased by 6%–10% across most retail products.
As a result, a growing number of retailers are transitioning their brick-and-mortar locations into a combination of online order fulfillment centers and experience centers for customers (more on that shortly). And for further evidence of eCommerce’s continued growth, Insider Intelligence predicts that worldwide eCommerce sales will account for a 22.3% share of total retail sales, for a total of $6.169 trillion USD.
The moral of the story? ECommerce will continue to blaze a path and be a major focus for 2023 and beyond, but digital adoption has yet to completely supplant the in-store experience. Retail spaces will need to find a balance in their approach because more people are finding that the customer journey isn’t bound to a single experience. Speaking of which …
2. Hybrid Experiences Reshape Retail
The resurgence of in-store shopping has prompted new ways of thinking from retailers, many of whom are looking to design more cohesive omnichannel customer journeys and deliver unique, memorable shopping experiences that blend elements of both the digital and the physical worlds.
On the physical side of things, brick-and-mortar locations are well on their way to becoming experience centers rather than traditional stores. From event spaces, such as the House of Vans in London, which features a concrete skate bowl and regularly hosts art installations, workshops, and concerts, to creative store concepts, such as Nike Live small-format stores, which are member-driven boutiques that offer curated merchandise and added perks, retailers have found creative ways to generate word-of-mouth marketing and design one-of-a-kind experiences.
Especially savvy retailers have added digital components to their in-store experience, including augmented reality (AR), interactive kiosks, digital displays with built-in touchscreens, and apps designed specifically for in-store use. The inverse is also true: Retailers have found clever ways to introduce physical capabilities to the digital realm, such as using AR to enable shoppers to virtually view furniture in their homes and even try on clothing.
These hybrid experiences, once viewed as experimental, will only become more commonplace in 2023 and beyond as retailers compete to out-innovate one another and craft experiences that excite and delight customers.
3. Gen Z & Millennials Assert Themselves as Digitally Conscious Customers
With each passing year, Millennials and Gen Zers account for a larger percentage of the consumer popularity, both domestically and internationally. As early tech adopters and tech natives, both generations are more accustomed to digital services and instant convenience than their Gen X and Baby Boomer counterparts.
As a result, younger shoppers were faster to transition to online shopping at the height of the pandemic and are perfectly comfortable using online consumption financing options such as buy now, pay later (BNPL). In fact, eMarketer reports that almost 75% of all BNPL users in the U.S. are either Gen Zers or Millennials.
Digital technology is only part of the story, though, as both Millennials and Gen Z are inclined to shop according to their personal values. Gen Zers, especially, will put pressure on brands to take action on causes they believe in — notably, climate change, racial equality, and affordable education — and praise brands that take a strong stance.
This, combined with their penchant for being frugal with spending, makes for a potent combination for brands looking to win over the next generation of customers. Eco-conscious consumers will prefer brands that are transparent about using ethically sourced and sustainable materials and support fair factory conditions. Given that younger consumers are inherently skeptical of brands and more likely to do their research before buying than previous generations, it isn’t enough for brands to preach inclusivity or ethical responsibility — they need to actually demonstrate their commitment to social causes.
4. Personalization Shines in All Parts of the Customer Journey
On-demand personalization continues to spread to all retail areas and is only being further refined as new technologies provide customers with a greater degree of control. We’re well past the days where personalization constituted having first name fields in your direct emails. The majority of retail companies now offer changing product recommendations, filtered emails that remove previously purchased items, and advanced profiling systems that enable customers to create their identity and means of interacting with the business.
For pointers on how to personalize your products, look no further than industry leaders such as Nike, which enables shoppers to create custom-designed sneakers — with tips and tricks from the company designers — through its Nike By You program, or Stitch Fix, which uses a combination of in-house stylists and natural language processing algorithms to send curated clothing collections to customers and “learn” from their feedback. These ultra-personal touches engage customers on an emotional level and inspire additional brand loyalty.
Retailers unable to replicate this level of hyper-personalization need not despair: While shoppers have a strong point of view on personalization, their expectations are fairly realistic. McKinsey groups these expectations into four main categories, shown below:
When incorporating personalization into your retail strategy, keep the following in mind:
- Convenience: The process should be easy to access and simple to use.
- Customizable: Options should be as varied as possible and allow users to be creative.
- Efficient: Any customizable process should reduce pain points for customers, granting them faster access to what they want.
- Experiential: The process itself should be enjoyable and true to the style and message of the brand.
5. Customer Journeys Should Be Seamless
ECommerce is more than just a convenient way to shop — it’s now customers’ preferred way to make purchases and is expected to account for a quarter of total global retail sales by 2025.
At this point, the real challenge isn’t breaking into the eCommerce space — it’s about ensuring that customers are able to seamlessly transition from online to in-person channels and back again with as little effort as possible. In order to achieve this, retailers need to invest in a customer experience management platform that will enable them to:
- Gain a 360-degree view of shoppers across all channels and interactions, so that they may better understand consumer behavior and map customer journeys
- Ensure that branding and customer service are consistent, regardless of whether the customer is interacting with a retailer’s website, mobile application, or a sales associate at their nearest brick-and-mortar location
- Gain real-time inventory visibility, generate accurate demand forecasts, and automate replenishment, so they can ensure that the right products are in the right place at the right time
- Offer flexible fulfillment options with complete visibility into order status and location
- Provide multiple payment options, such as BNPL, mobile wallets, and loyalty program points, so that customers have the flexibility to choose their preferred payment method
Should retailers succeed in delivering frictionless customer journeys, they’ll be well rewarded, Qualtrics reports that companies that rate their experience management strategy as “significantly above average”:
- 89% report better revenue growth than their competitors in the previous year,
- 9 out of 10 report better profitability than competitors in the previous year, and
- 84% report better employee retention than competitors in the previous year.
6. Employers Take a New Approach to Workforce Empowerment
In years past, conversations around employee empowerment in the retail space focused on how to help employees better serve customers. While that’s still important, retailers currently find themselves in the midst of a “Great Resignation,” with government data showing that a reported 4.3 million people quit their jobs in January 2022 alone.
According to the Pew Research Center, workers offered a long list of reasons why they made the decision to quit, including low pay, a lack of opportunity for advancement, feeling disrespected at work, child care issues, scheduling inflexibility, and insufficient benefits.
In light of this information — and changing attitudes toward work, in general — retailers need to rethink their approach to employee empowerment, one that balances maximizing existing headcount with creating more healthy, positive workplace environments. This new approach will require companies to strategically leverage technology in ways that make employees’ jobs easier.
For example, centralized human resource solutions move beyond simple systems of record, making it easier for employees to make requests or for management to dynamically adjust schedules. Automation and artificial intelligence (AI) — from chatbots to shelf-scanning robots — help streamline otherwise tedious, manual tasks, enabling employees to do more engaging and even creative work. Retail learning management systems provide a consolidated knowledge base for employee training, building repeatability into the process and providing employees with a digital resource they can refer back to if they have questions or need assistance.
As with any new technological investment, it isn’t enough for retailers to simply stand up new systems and expect employees to be on board. From customer relationship management software to inventory management platforms, all systems must be designed in a human-centric way so that they’re user-friendly, accessible, and actually meet employees’ — and customers’ — needs. In order to deliver on this front, retailers should solicit feedback directly from employees and work with an experienced solutions provider with substantial design expertise to implement new systems.
7. Social Community Includes Social Commerce
The online community space continues to grow and expand into new channels. Developing online areas and custom apps for consumers to communicate and advocate is only the start for your brand. Consumers become “prosumers” as they use your products to promote their own brands and channels. Here’s what to look for as more customers take up the mantle of influencers:
- Introduction of Older Demographics: Influencers aren’t just Gen Z anymore. Older customers in their 40s, 50s, and 60s are also developing their own brands. This opens up opportunities for all varieties of products.
- Channels of Influence Increase: Streaming service Twitch and video app TikTok join Pinterest, Instagram, and Facebook as digital social communities. Promotion isn’t video only, as podcasts on platforms like Spotify can also be used to discuss, review, and advocate for brands.
- Live Streaming Expands: Live streaming content had a big moment in 2021 as it proved to be a powerful means of creating connections and growing communities. Platforms like Amazon Live Creator and Instagram’s Live Shopping will look to take advantage of this growing medium.
- Retail in the Metaverse: With the advent of the metaverse — an integrated network of 3D worlds in which users can connect virtually — and the growing popularity of non-fungible tokens (NFTs), we can expect more retailers to expand their offerings through digital marketplaces. From luxury brands such as Balenciaga and Louis Vuitton to fast-fashion companies such as Zara and Forever 21, major retailers everywhere are getting involved in metaverse and gaming platforms, with eMarketer reporting that the market for avatar skins in games alone was estimated to be worth $41 billion in 2021.
Directly “shoppable media” — which includes live streams, social commerce, virtual consultations, and shoppable ad formats — is expected to be the fastest-growing advertising category for the foreseeable future. Forbes reports that roughly two-thirds of consumers today use social media as part of their shopping strategy, while Insider Intelligence states that social commerce sales are expected to reach $45.73 billion this year, with more than half of the country’s adults making a purchase on social media.
8. Prepare for the End of Third-Party Cookies
Google has made the announcement that it will phase out support for third-party cookies within its Chrome browser by the end of 2023; Safari and Firefox are taking similar actions. While companies are still able to use first-party cookies (for the foreseeable future), the deprecation of third-party cookies means there will be fewer opportunities to track customers’ actions online and log the sites they visit. This loss means a drop in the amount of information that businesses can use to better target ads and check their performances.
Currently, $100 billion in advertising spending is powered by third-party cookies, and it’s predicted that only six out of 10 businesses will be ready for a cookie-less future. The question that marketers need to ask is where their information gather capability is going to be at end of the year. Is it more important to increase spending, or optimize existing resources in order to get the same results?
With third-party cookies on their way out, we expect to see a growing number of businesses develop their own customer data platforms and prioritize first-party data — occasionally augmenting it with second-and third-party data — to personalize content. Given growing scrutiny around data usage and customer privacy, retailers that choose to go this route will need to consider ethical data sourcing and define strong, easy-to-understand privacy policies.
9. Retailers Take Steps to Overcome Disruption in the Global Supply Chain
Perhaps the biggest lesson of the COVID-19 pandemic for retailers is that the global supply chain is not immune to disruption. Even two years out, many countries are still navigating changing restrictions on travel exports, and memories of empty shelves still haunt retailers’ and consumers’ minds.
Logistics industry publications predict that although supply chain pressures may have eased in 2022, they’re unlikely to go away entirely. As Global Trade Magazine reports:
“Recognizing that ‘just-in-time’ supply chains will not return to their prior efficiency, companies will continue to adapt in 2022 by warehousing essential inventory (when possible), diversifying supply chains, and selecting to manufacture closer to the consumer base.”
Adapt, indeed. In order to make their supply chains more resilient, retailers are advised to:
- Look to multisource products from different providers, or even consider near-sourcing to move supply chains closer to home
- Review freight and carrier costs to see what can be optimized or adjusted to be more efficient
- Consider partnering with a freight forwarder to identify opportunities to keep shipments moving
- Reconsider which parts of their inventory they use for eCommerce, which parts they use for brick-and-mortar stores, and which parts they use for both
- Experiment with different business models, including the use of retail spaces as dark stores, ghost kitchens, micro-fulfillment centers, and distribution centers
10. Businesses Move Beyond the Single Purchase Model
Consumers are increasingly looking for alternatives to the pay-in-full model for services and products. Over the past few years, subscription models have been on the rise and the trend looks to continue. It’s not that the subscription model is inherently more popular; it’s usually sought out by consumers interested in a personalized end-to-end experience that provides convenience and unique benefits.
McKinsey categorizes eCommerce subscriptions into one of three categories:
- Replenishment: service that meets the need of purchasing commodity items, providing convenience while saving time and money
- Curation: provides a variety of products, with personalization based on customer preferences
- Access: exclusive access to materials and services; can also provide VIP perks
Customers expect different benefits from different services. Curation and access subscribers expect the personalized experience to become more tailored over time. Access subscribers highly value convenience, as do replenishment subscribers. Value is also a very important factor for replenishment subscribers if they’re going to stay with the service.
How subscription services build customer loyalty is an excellent lesson for any business. Since customers are likely to come to a service from many different angles, there should be a holistic understanding of the different loyalty experiences that build a brand.
- Transaction Loyalty: This is the first consideration, where a customer buys from a service more often and, as a result, builds a sort of momentum where they will continue to solicit the brand.
- Attitudinal Loyalty: Here, the customer trusts the brand enough to actively recommend to others. There’s a “feel good” sense when a customer solicits the brand.
- Fundamental Loyalty: This is concerned with the fundamental basics of value: good quality, reliability, competitive price, and ease of use.
11. BOPIS, BOPAC & BORIS are Here to Stay
Designed to create safer means of shopping for COVID-conscientious consumers, buy online, pick up in-store (BOPIS); buy online, pick up at curbside (BOPAC); and buy online, return in-store (BORIS) have now become integral to the retail experience. With this permanence comes the need for retailers to reinvent their BOPIC, BOPAC, and BORIS strategies so that they remain convenient for customers without becoming a logistical nightmare on the back end.
It seems as though the success or failure of BOPIS, BOPAC, and BORIS initiatives depend entirely on retailers’ inventory management capabilities.
“BOPIS bottom-line benefits are significant, but only when executed properly. […] Without accurate inventory management, retailers risk losing a valuable customer for life.
With the stakes being so high, the importance of addressing BOPIS inventory management challenges is well understood. Ninety-three percent of respondents in [a] NAPCO Research survey reported that they placed a significant or moderate focus on inventory accuracy when developing their BOPIS program.
Oftentimes, this requires retailers to reexamine their legacy technology solutions, such as order management systems, to ensure they can enable such robust omnichannel fulfillment strategies. Thirty-six percent of retailers today ranked synching online and in-store inventory as an obstacle for BOPIS success, and 22 percent reported that their legacy technology system was not sophisticated enough to meet new omnichannel demands.”
Although the research WWD cites focuses specifically on BOPIS, the same applies for both BOPAC and BORIS strategies, as well.
In order to support the long-term success of BOPIS, BOPAC, and/or BORIS, retailers must invest in a modern inventory management system that can provide a single, global view of inventory positions across their business, that leverages rules-based orchestration to automate order fulfillment, and that offers the flexibility to adapt to changes within the marketplace and their supply chain.
12. Contactless Payments & Autonomous Shopping Take Off
BOPIS, BOPAC, and BORIS aren’t the only pandemic-era innovations that are here to stay: Contactless payments and autonomous shopping have also become permanent fixtures within the retail landscape.
Originally implemented as a safety precaution for in-store shopping, customers have come to appreciate the convenience that contactless payments provide, saving them valuable time otherwise spent counting cash, entering PINs, or signing receipts. According to a Mastercard global consumer study, nearly eight in 10 shoppers said they use contactless payments. Raydiant reports that 57% of consumers said that they would be more likely to do business with retailers that offer a contactless payment option.
Autonomous shopping takes the concept of contactless one step further, leveraging AI to create cashier-less stores where customers can simply scan their phones to enter, select the products they need, and leave, with the money they owe automatically subtracted from their bank accounts. Though it might sound like science fiction, the technology that makes autonomous shopping is becoming increasingly affordable and accessible, leading industry experts to predict that autonomous stores — such as Nourish + Bloom Market in Atlanta, Georgia — to become more commonplace in 2023 and beyond.
13. Sustainability Is Top of Mind for Shoppers
Sustainability — it isn’t just a hot-button issue, it’s also a top priority for today’s retail customers. From eco-friendly products made from renewable resources with minimal environmental impact to ethically made and sourced items produced by companies with fair wages and labor practices, socially-conscious consumers are looking to vote with their dollars. In fact, according to a Capgemini consumer survey, 79% of shoppers are changing their purchase preferences based on sustainability. Additionally, 34% of shoppers are willing to pay more for sustainable products and services, and those willing to pay more would accept a 25% premium on average.
It’s clear that embracing sustainability is a real revenue-generating opportunity for retailers in the know, and many industries and advocacy groups already offer guidance on how companies can implement more sustainable practices. It’s imperative, though, that retailers avoid “greenwashing” — leading consumers to believe that their products are more eco-friendly than they really are — in their eagerness to capitalize on this trend. Doing so can actually alienate consumers, with over half of customers surveyed said they would stop shopping altogether with brands they perceive to be greenwashing.
14. Data-Driven Decisions Are More Important Than Ever
By far the biggest takeaway of the times we’re in is that no one can account for massive disruptions like the pandemic. Trends can point in a direction, but unprecedented or unforeseen events will always cause seismic shifts in all industries. The only way to be sure about what might be the best path forward for your retail business is to make effective use of real-time data across all available channels.
Democratize your data — all parts of your business enterprise need equal access to the same data. Break down those silos and foster better communication across channels and departments. Getting a clear idea of who your customers are and what they want, and how to best deliver that to them, starts with organizing your data infrastructure for a more unified and holistic view.
Implement the Latest Retail Trends
Microsoft Dynamics 365 integrates cutting-edge customer relationship management and enterprise resource planning capabilities with cloud technology to provide a comprehensive, multi-channel management platform that grows along with your business. Interested in learning more about these retail industry trends and how to use Dynamics 365 to implement them in your business? Get in touch with Hitachi Solutions and get started today.