Each fall the retail industry and news networks chime in with Q4 predictions. This year, especially with looming mid-term elections, continued post-pandemic pressures and rising global energy/supply chain costs, the predictions are even more vital. Industry reports commonly predict a 3-5 percent increase in retail sales YOY, but with 8+ percent inflation rates, experts are conflicted on how the consumer will respond this holiday season and are pushing back on actual growth.
Predictions for the Future and Beyond
With 300+ leading global clients and over 20 years of transforming the industry, Columbus Consulting is well-positioned to share our insights and highlight what is most top-of-mind for retailers. Here are five key trends and observations for this holiday and onward to 2023:
Continued Consumer Trade-Off and Debt Growth.
Early inflation and cost increases across the supply and food chains have yet to significantly curb consumer spending, but we are seeing a reduction in savings and an increase in debt. We are also seeing consumers trading off from brand shopping to private label and promotional shopping. Certain categories are less susceptible to losing market share but as consumers get more squeezed, this trend will continue, and everyday low pricing and strong margin options will benefit. As will buy-now, pay-later providers.
Wrong Inventory in the Wrong Places Equates to Early Promotions and Intelligent/Selective Pricing.
Inventory is a dramatic case of the best and worst of times in a collision course. During the pandemic inventory levels were low and slow. Now, with past bottlenecks now flowing through the pipeline, retailers are seeing out of season and out of fashion — or even expired goods entering into their distribution channels. This has created a glut of goods that is forcing retailers to resort to an infrequently and often discouraged inventory strategy known as “pack and hold” (holding out of season product in a distribution center until a future time when it is deemed more seasonally appropriate) or to mark them down and take a loss to their profit margins. The latter choice will drive earlier and more aggressive promotions and will motivate retailers to apply automated competitive pricing models to best protect profits throughout the season.
With looming mid-term elections, continued post-pandemic pressures and rising global energy/supply chain costs, holiday predictions are even more vital. With 8+ percent inflation rates, experts are conflicted on how the consumer will respond this holiday season and are pushing back on actual growth.
What does this mean? You probably won’t see store- or site-wide promotions, but there will be more frequent, targeted category or item discounting. The most sought-after products and brands will less likely participate in deep promotional activity, but the less desirable clearance items will flood the market soon.
Both strategies (pack and hold and deep discounting) come with a cost. Pack and hold has inventory carrying costs, both financial and operational; and promotions erode profit margins in the short-term, and risk damaging the integrity of the brand in the long-term.
Ecommerce Growth Levels Off.
Ecommerce has grown exponentially year over year is now 20 percent of all retail business (although varies by sector depending on the business and merchandising models). Not only has digital commerce grown in relationship to its own base, but it has become the predominant tool to drive unified customer experiences like BOPIS and BOPAC (buy online pick up in at curb). With the pandemic closing many/most brick-and-mortar stores and disproportionately shifting consumer spend and behavior to the virtual space, how much can ecommerce grow post-pandemic? Digital brands will need to post positive “comp store” like trends and drive growth — not by default, but by faster, more accurate business practices. The industry predicts ecommerce growth to 23+ percent of total sales, but many categories will level off and have growth rate declines even with the sales expansion.
Malls Get More Exclusive.
The death of the shopping center has long been predicted, but the truth is that we will still have clusters of shopping destinations, only fewer of them with more defined assortment/merchandise mixes. This is a case of the strong/best getting stronger and better and the weak fading away. Look for signs of transition in Q4 and throughout 2023.
Developers used to adhere to a tenant mix of entertainment and restaurants blended with high- to low-end retail and some services sprinkled in between. This one stop shopping is no longer applicable as consumers have redefined how, where, and why they will make a trip to a physical store. Even grocery stores and food anchors are no longer sacred. Developers are now re-examining their portfolios and redefining the shopping center model. More commercial spaces/distribution centers and mixed living/lifestyle centers are emerging in luxury-focused centers. More local shopping options and targeted mall assortments will squeeze out the once popular strip centers.
Winners and Losers.
There will be two clear paths forward: one, the continued growth of localized brands and proprietary concepts and, two, digital marketplaces with one-pay processing and single day delivery options. With gas prices still at pre-pandemic highs, consumers will gravitate to “free shipping,” local shopping, and more destination-driven, intentional buying.
Who’s Doing It Right?
- We like what health-oriented retailers are doing. For example, one leading chain refocused their mission to health, changed their name, shifted to more profitable proprietary brands in categories with less brand loyalty, layered on automation, repositioned the store as a community healthcare provider for in-person mild medical needs.
- Clubs and bulk retailers, especially those that are using grocery and gas pricing strategies for memberships and subscription models are getting it right.
- Athleisure fashion brands that are firing on all cylinders with a focus on both men’s and women’s businesses, unified commerce operations and strong merchandising strategies that drive store visits.
- Third-place retailers who are reimagining their spaces. Once struggling with pandemic restrictions, third-place retail (think coffee shops) are still impacted by the work from home trend which virtually eliminated their out-of-home reason for being. Brands that are transforming their physical environments to cater to parallel services like partnering with Amazon or others are creating a new lane for themselves. Couple these new service benefits with some value “inflation/recession-worthy” offerings and you have a new win-win.
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Note: Columbus Consulting is a Robin Report Collaborative Partner