5 Retail Trends to Watch in 2023
Retail media is an attractive business opportunity for many retailers where they display brand ads in store or on apps and e-commerce sites, or shared via external channels such as social media platforms. CPG brands are shifting advertising dollars to this “channel” to leverage retailers’ digital and physical channels to promote their products and make incremental sales as ads are placed closer to the point of purchase. In return, CPG brands receive new insights and analytics on ad effectiveness and can modify their broader advertising creative and strategy based on real-time results.
This is an exciting space to watch and one in which there may be plenty of innovation in the coming months. Retail media networks shift the dynamics so that the retailer is now the vendor, and the brand is the buyer. It builds a mechanism for collaboration across brands and retailers. For retailers to monetize their data in this fashion, they may have to build trust in the offer and provide verifiable results so retail media can generate incremental returns to brands. If included as part of strategic partnership discussions through Joint Business Planning (JBP) as another lever alongside driving trade, shoppers, and retail execution, it could allow for value creation opportunities for all.
Coresight Research estimates that the global retail media industry will total $75.1 billion in 2022, up 80.1% from 2021, making it one of the fastest-growing advertising channels. According to a survey conducted by McKinsey in June 2022, 82% of advertisers plan to increase their retail media spending in the next 12 months. According to Coresight Research’s August 2022 survey, among the U.S. retailers that currently have retail media capabilities, 52.6% attribute annual revenue growth of at least 10% to retail media, while 55.7% attribute annual EBITDA growth of 10%–30% to retail media. Retailers that have launched their own RMNs include Best Buy, Carrefour, eBay, Gap Inc, Home Depot, Lowe’s, Kohl’s, Kroger, Macy’s, Michaels, Nordstrom, Sephora, Target, Ulta Beauty, Wayfair and Williams-Sonoma.
- Clerk: Shopping started by visiting the store with a list, then the clerk went and retrieved all the items.
- Single Checkout: In 1916-18, the first self-service store allowed customers to pick items from shelves (Piggly Wiggly in Memphis, Tennessee).
- Scaled Checkout: Checkout lanes were scaled for volume (Piggly Wiggly Continental, Encino, California, 1962).
- Self-Checkout: The NCR Corporation models self-service checkouts and fast-lane at a Sainsbury's store.
- Scan-and-Go: Allows customers to scan items as they shop (Giant Food store).
- Frictionless Checkout: Amazon Go 2016, for example.
As tech investments in infrastructure bandwidth and computer vision continue to accelerate along with cloud capabilities linked to store systems, expect frictionless capabilities to advance quickly. New stores will be the focus where infrastructure can easily be installed prior to build-out.
In a recent study conducted with EnsembleIQ on immersive commerce, 77% of respondents indicated that they are familiar with immersive retail. In this study, immersive retail was defined as enhancement of consumer shopping experiences with technological features in-store (e.g., with apps, QR codes, augmented reality, interactive displays, etc.) and/or online (e.g., with virtual try-ons, 3D product previews, etc.). Of the sub-areas within immersive retail, personalization, livestream shopping, and virtual stores were most recognized while virtual try-on, in-store augmented experiences, and metaverse were least familiar as to how to bring them to life in a retail strategy.
In the study, respondents shared that the challenges for immersive retail growth include improper execution, reluctance to invest, and a lack of understanding of immersive retail’s capabilities or value. Retailers will need to find ways to link the real and virtual worlds to drive value from the investment.
In two other studies, research found that 70% of consumers who have shopped in a virtual store make at least one purchase. Nearly 75% of Gen Z shoppers have purchased a digital item within a video game and that 60% of these young shoppers think that brands should sell their products on metaverse platforms. Among respondents who had previously shopped online in a virtual store, 60% indicated that they are likely to do so again, including 54% of Gen Z-ers, 68% of millennials, and 67% of Gen X-ers. Images help, and videos help slightly more; however, using augmented reality (AR) to visualize a product in 3D can increase conversion by 94%.
Retailers in 2023 will have the opportunity to take advantage of cost advantages in the supply chain. Given softening demand for modes of transportation, retailers will have the opportunity to take advantage of newfound excess market capacity. They will also be able to move to less expensive transportation modes where there is little-to-no impact on business performance or delivery times to warehouses and stores.
Retailers will also focus on supply chain “resilience” in 2023 — resilience: the capacity to withstand or to recover quickly from difficulties. The move to on- or near-shore high-demand/highly volatile goods will continue as organizations seek to be more reactive to demand changes without missing opportunities or carrying excess inventory.
In 2023, leading retailers will leverage last-mile delivery partners that offer more sustainable delivery options. In fact, most of the sustainable delivery options are actually lower cost. Thirty-nine percent of respondents in Descartes’ survey on consumer sentiment around sustainable delivery said they “regularly” or “always” make purchasing decisions based on the company’s or product’s environmental impact. Examples of more sustainable delivery include electric vehicles, Green delivery time slots, dark stores, and consolidation of deliveries.
Bottom line, supply chain remains No. 1 or No. 2 on the executive priority list in 2023.
Journey to the Cloud
Many large-scale retailers have made significant IT investments in digital commerce — and in the wake of the pandemic, it’s largely paid off. But despite the rush to digital commerce, it’s still hard for many retailers to take full advantage of the new possibilities and the impact it’s having on consumer experiences. Even today, somewhat surprisingly, 80% of sales still involve physical stores.
To unlock the potential of digital commerce, retailers are seeking a fresh approach — and this will require new technologies and a new digital architecture, largely leveraging modern cloud-based solutions and services. It’s becoming clear that many current and legacy retail ecommerce systems — typically built in the form of “monolithic” applications — are hard to scale, difficult to manage, and don’t provide the flexibility needed to meet the buyer anywhere anytime. Pure-play retailers, especially the digital natives that started with a “cloud-first” approach, are taking advantage of the cloud’s ability to scale and engage with customers dynamically.
To match the competition and break new ground in the market, retailers will need to innovate faster and master an ever-evolving omnichannel operating environment that consumers now expect, indeed demand. The goal of every retailer is to provide the best possible shopping experience by reducing friction throughout the customer journey and merging traditionally distinct channels so customers can move seamlessly between them. This has long been the promise of “omnichannel” and it is key to building an agile and cost-effective digital commerce solution.
Each year, I highlight the “hot” buzzwords across the technology and consulting-vendor-partner-sphere. This year’s highlights are: metaverse, web 3.0, immersive commerce, composable commerce, computer vision, AR/VR, virtual stores, AI-ML (consistently in our annual top-buzzword list), supply chain resiliency, CDP, frictionless (can be experience or checkout), seamless, smart stores, digital twin and of course, Cyber Five.