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Consumer E-commerce Retail trends Technology

2023 Predictions: A UK Retail Rollercoaster

‘Permacrisis’ was declared the word of 2022, so what might 2023 bring?

There are reasons for cautious optimism, but first retailers are going to have to buckle up and brace themselves for more turbulence.

Spending more to buy less

Let’s briefly recap on retail’s Golden Quarter. Christmas was not the wipe-out that many of us had expected. After a bumpy couple of years with Covid cancelling Christmas, consumers were determined not to let illness, inflationary pressures or industrial action hamper their celebrations.

There are some caveats here: soft comparatives (remember Omicron?); supermarket success came at the expense of the hospitality sector; and perhaps most importantly much of the growth we saw was fuelled by inflation – in December retail sales were up in value terms but volumes continued to fall. In other words, consumers are spending more to buy less.

Inflation might be starting to ease, but consumers are still a long way from feeling the benefit. This ongoing erosion of spending power makes for a pretty gloomy outlook: consumer confidence tanked again in January, returning to a near 50-year low. Looking ahead, the deterioration in consumer sentiment is likely to persist throughout the first half of the year, at least. A reminder to retailers that value will remain firmly top of mind, purchases will continue to be incredibly considered, and big-ticket discretionary buys will be delayed.

Trimming the fat

The spending hangover is here and while there’s never a good time for subdued consumer demand, it’s especially painful when retailers are simultaneously grappling with their own cost inflation. No one is immune: this dangerous combination of soft demand and rising costs is impacting even the most bulletproof retailers. Amazon, for example, is laying off 6% of its global workforce, closing warehouses and putting the brakes on bricks & mortar expansion. 2023 will be a year of operational efficiencies for retailers, in many ways mirroring their own customers’ behaviour by trying to do more with less.

The other immediate challenge for retailers will be shifting excess stock, the result of over-ordering during the supply chain crisis and exacerbated by the current consumer weakness. With a glut of inventory and sluggish demand, retailers are left with little choice but to slash prices. But wait, haven’t they been doing that for the past four months? Aside from the obvious margin implications here, there is also the risk that shoppers are becoming desensitised as promotion fatigue sets in – or even worse, that they forget what it’s like to buy at full price.   

2023 opportunities: bricks & mortar resurgence and immersive digital experiences

There’s no sugarcoating it: 2023 is going to be another year of instability and uncertainty. But the retail industry is nothing if not resilient and I believe there are reasons to be optimistic. Stores are back, they’re repurposed and better than ever. We’ve been thrust into the future thanks to the pandemic-induced digitization of bricks & mortar retail, levelling the playing field and shifting the industry’s perception. Stores were once considered liabilities in this digital era, but they’ve been reconfigured for 21st century shopping and are now essential assets.

When it comes to customer experience, I believe that ‘tech-enabled human touch’ will be the next battleground, as retailers recognise the many opportunities that come with equipping your staff with the right digital tools. Mediocre experiences have become a thing of the past. Meanwhile, automation will climb higher up the agenda as retailers look to achieve operational efficiencies, despite the initial outlay, while simultaneously addressing the current labour shortage. In 2023, we’ll see more trials of autonomous vehicles delivering our goods and robots working alongside humans in warehouses.

Shoppers will continue to abandon e-commerce in droves now that we have returned to some semblance of normality. Some categories like food, fashion and furniture will never transition online like the rest of retail has, but it’s clear that as an industry we have been propelled towards a more digital world. And over the next decade, new, immersive digital experiences will redefine our perception of e-commerce – this is going to be the next big thing in retail. I’m still a bit of a metaverse sceptic. I know barriers can be knocked down but right now how many of us really have a VR headset kicking around at home? However, it’s clear that e-commerce is ready to evolve. Sure, all of the friction has been sucked out and today the experience is wildly accessible, slick, effortless. But is it any fun? Not really. It’s still far too transactional, too one-dimensional. This will change.

The next stage of e-commerce is all about immersion, discovery, curation, hyper-personalisation and escapism. And it’s already happening with augmented reality, virtual showrooms, live shopping, social commerce, 3D product views/virtual try-ons, video shopping consultations, among others. In the future, we won’t know where the physical world ends and the digital one begins.

Our hybrid way of living is here to stay and while businesses may still be acclimatising to the consequent shifts in demand patterns, longer term this will present new and exciting customer engagement opportunities. Despite tight budgets, investment in sustainability will remain high on the agenda in 2023, while opportunities to tackle the often-neglected post-purchase experience and explore new revenue streams such as retail media and third-party marketplaces will accelerate. In summary, short-term volatility will persist while consumers batten down the hatches, but as always the future of retail is bright for those who are willing to evolve.

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Retail trends

Black Friday 2022: Less Frenzied, More Focused

We went from Black Friday to Black November, but this year I’d say we’re having a Black Autumn. There has been a constant stream of discounts since September. This is particularly true in fashion, where a combination of unseasonably warm weather and cost-of-living pressures have really dampened demand. Yes, people are hungry for bargains, but they have to be genuine ones. Shoppers have become desensitised to all of the “20% off everything” sales. Blanket discounting is causing promotion fatigue.

The appeal of Black Friday has also been diluted because shoppers have cottoned on to the fact that it is a manufactured event and prices are not always at their lowest. Black Friday is designed to drive impulse purchases and instil a sense of FOMO. But according to Which?, only one in seven Black Friday deals offer a genuine discount.

Electricals is typically an exception here, as retailers have more margin to play with, but this category is likely to underwhelm this year. Consumers spent the pandemic kitting out their home offices and entertainment spaces so demand for new technology will be much weaker than normal.

Meanwhile the World Cup – and particularly the timing of tonight’s England vs USA match – will also add to the Black Friday fizzle. Retailers are likely to extend the discounting into the weekend, as Friday night celebrations keep people from shopping.

I’d also like to think that there has been a deep societal shift, as more and more shoppers reject the idea of excess consumerism. Let’s face it, Black Friday is gluttonous. It’s wasteful. It drives up returns and millions of products ultimately end up in landfill.

Despite all of this, shoppers will be out in full force today, sussing out the deals but in a more restrained manner compared to previous years. Black Friday will be less frenzied, more focused. Big-ticket purchases will be more considered and this year, more than ever, shoppers will be utilising the technology in their back pockets to check prices and ensure they’re getting a bona fide bargain.

There will inevitably be those that get caught up in the adrenaline-filled rush of Black Friday shopping. Buyer’s remorse will be strong this year, and retailers should be preparing for a mountain of returns.

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Amazon

Black Friday: Expectations & Amazon’s Pop-Up

Tonight, I had the pleasure of attending the launch of Amazon UK’s latest bricks & mortar experiment – ‘The Home of Black Friday’ pop-up in Shoreditch.

This is the second year that Amazon has opened a temporary showroom in a bid to raise awareness of the 10-day discounting bonanza that is possibly now only trumped by the retailer’s very own artificially created shopping event – Prime Day in July. But I digress.

Love it or loathe it, Black Friday has become a permanent fixture on the UK shopping calendar and we have Amazon to thank for bringing it across the Atlantic back in 2010.

Three Black Friday observations for 2018:

1) More like Black November. Black Friday is getting longer: Amazon, Argos and Debenhams are just a handful of retailers running week-plus long events. Consolidating the bulk of your Christmas trade into 24 hours tests even the most advanced supply chains. Doug Gurr, MD of Amazon UK, mentioned tonight that one of the reasons Amazon has extended Black Friday in recent years is to “take out some of the pinch points”, operationally speaking. So, although spreading the event out over a couple of weeks might dilute the sense of urgency traditionally associated with Black Friday, it should ultimately result in a more streamlined experience for both retailer and consumer and, ideally, lead to lower returns rates. Previously, many shoppers who got caught up in the one-day frenzy would end up with buyer’s remorse and by the time the returned product made its way back onto the shelf (particularly for an online order) it would have to be further discounted.

2) Promotion fatigue/consumer scepticism. Consumer group Which? is warning shoppers not to get “duped by dodgy deals” since last year nearly 9 out of 10 Black Friday ‘bargains’ were cheaper at other times in the year. I’d like to think most consumers today are savvy enough to understand that Black Friday is mainly a lot of noise, with a few genuine bargains the mix. According to PWC, half of UK consumers are not interested in the event at all this year with 11% warning they would intentionally avoid shopping altogether.

3) But peer pressure… Despite the many harmful effects of Black Friday – erodes margins, pulls spending forward, dilutes trust and credibility, etc – it’s equally risky to shun it altogether. This is the only time of the year when retailers genuinely have a captive audience. There is an appetite to spend, a reason to loosen purse strings, and not many national retailers are brave enough to miss out on the potential sales. B&Q is the only genuine exception I can think of (even Next took part last year). On paper, M&S is shunning Black Friday again this year but they have been running 20% off sales for Sparks members. Limiting the deals to loyalty cardholders is a more subtle approach, but a blanket discount can be just as effective when it comes to driving footfall.

Amazon’s ‘The Home of Black Friday’ pop-up

As with most of Amazon’s bricks & mortar experiments, The Home of Black Friday pop-up has very little to do with shifting product. In fact, it would be a stretch to call this a shop (to be fair, Amazon doesn’t). It’s a showroom designed to humanize the Amazon brand, to tempt shoppers into the retailer’s very sticky ecosystem, get them engaging with the app and ultimately driving adoption of its various devices. If you’re interested in why Amazon is pushing so heavily into bricks & mortar retailing, there’s a whole chapter dedicated to exactly this in my upcoming book which launches in just six weeks!

The Home of Black Friday is located at 3-10 Shoreditch High Street, London, E1 6PG and will be open to the public from 22-25 November.