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PREDICTIONS What shoppers will want from retailers in 2023

Each year, InternetRetailing starts to look ahead to the coming new year in a series of predictions. Today’s predictions, from a wide range of industry commentators, look at what customers will ask of retailers as the cost-of-living crisis continues in 2023

No frills shopping

Melissa Minkow, director, retail strategy at digital consultancy, CI&T, says: “With the cost-of-living crisis in full force, in 2023 we’ll see consumers increasingly embrace a ‘no frills’ outlook with spend. Excessive spending has become a thing of the past and more consumers – even those not so affected by the crisis – are cutting costs where they can, opting for cheaper discount supermarkets and cancelling subscriptions. In reaction, we’ll likely see retailers place more emphasis on basics ranges to attract consumers. Mid-priced clothing retailers, for example, will likely introduce more simplistic offerings and focus on staples for people’s wardrobes, versus quickly obsolete, trend-driven pieces. Consumers are already questioning the value of fast fashion, as they turn to more sustainable, long-lasting purchasing options.”

Customers prioritising the ‘fundamentals’

Kristof Neirynck, global chief marketing officer at Avon, says: “We are definitely seeing a trend for consumers prioritizing the ‘fundamentals’.  However, we also see that customers are not afraid to shop around and we’re finding they are open to trying new things in order to find the best quality products at affordable prices as they are re-evaluating the notion that ‘more expensive equals the best quality’.

“This being said, the “lipstick index” shows that sales of lipstick rises in times of economic uncertainty as consumers look to find simple, inexpensive ways to treat themselves and uplift themselves. As a beauty brand, it’s really important to emphasize the value of your products, which is a combination of product performance as well as price. Consumers will have no tolerance to spend money on products that don’t work, so emphasizing and proving beyond doubt that your products deliver great performance is more important than ever.”

Treats in a cost-of-living crisis

Katie Gilsenan, trends manager, GWI, says: “Economic forecasts are looking down, inflation is up and consumers are re-prioritising their spending. With this in mind, we’d also expect consumers to be cutting back on little luxuries but that’s not what we’re seeing. Consumers are continuing to treat themselves where they can, with clothing taking the top spot for budget treats. Retailers can tap into this further in 2023 by honing their messaging around quality and durability as consumers look to make their money stretch further.

“For Gen Z and millennial women, skincare and beauty products are especially popular. There is historic precedent for this too. During the 2001 recession, consumers were buying lipsticks in droves, a phenomenon coined the ‘lipstick index’. Right now, the beauty industry is benefitting from more socialising and the relative affordability of their products as well as its wellness factor, so brands can capitalise on these attributes next year as little treats become more important to consumers when times look bleak.

“Of course, no downturn is exactly the same as the last and this one will be characterised by pent-up demand from Covid-19 influencing consumer behaviour to some extent. Over the next year, brands need to pay close attention to consumer mood in such unprecedented times to create successful campaigns that strike the right.”

Think about costs – and which customers to prioritise

Liam JE Gerada, CEO and founder of Krepling, says: “The looming recession is providing a tricky and complex environment for multi-category retailers. My advice for merchants trying to navigate the uncertainty would be to continuously pay close attention to their ideal customer profiles. Customer priorities change in times of uncertainty, so it may be beneficial to address segments that you used to avoid and deprioritise segments that you used to favour. Brands could also consider refreshing their messaging. It’s unlikely that the same focus message will resonate the same way as it did during the pandemic. This would ring more true if a merchant were to change their target market. Above all, plan for a range of outcomes. What if sales drop? What if they rise? What is the conversion increase? What if they decrease? Being prepared during times of uncertainty is a simple yet proven strategy. 

“Look to pull in costs. If you’ve had growth for the last four to five years, there are likely internal efficiencies to rein in. Aim for 25% as a baseline. If you can do better, great. But looking for 5% cost savings will likely get you zero. Look for the hard gains too. It’s easy to cut variable costs. It’s harder to redesign a process to make serving your customer more efficient and improve that service at the same time.”

Balance profit and growth

Tony Preedy, managing director of Fruugo, says it’s never been more important for retailers to analyse, understand and manage unit economics to overcome these pressures in the new year, making trade offs between short-term profit and long-term growth. Metrics to review will include the costs of customer acquisition and customer lifetime value.

“Inevitably, rising costs are likely to cause retailers to increase their prices in the short to medium term,” says Preedy. “Digital retailers can be highly agile in how they price to optimise how they sell through their inventory, and they can also be savvy about how they target discounts to prompt a purchase. However, indiscriminate use of discounting to drive volume is likely to be ruinous: very few businesses properly calculate the impact on gross margin of reduced prices and the massive growth in units required to keep income stable, never mind growing.

He adds: “Cutting marketing provides short-term profit and loss (P&L) gain, but it will also bring with it significant medium-term pain. While brick-and-mortar retailers can, to an extent, rely on passing footfall for business, online-only retailers need to work hard to generate their traffic. They are therefore particularly sensitive to changes in marketing spend. Another consideration is that many home shopping businesses have relatively high fixed costs which makes them highly sensitive to economies of scale; relatively small changes in volumes can have very large bottom-line impact in either direction.

“Overall, sales volumes for any brand are a function of mental and physical availability – being present really matters, so reducing marketing spend is one strategy that organisations should try to avoid.

“Instead, retailers should look to leverage existing assets such as infrastructure and inventory by expanding their reach to a global scale. Basically, to sell more, businesses will need to grow the audience looking at their products by selling to international customers as well as local ones. This strategy can be a highly effective defence against falling local demand, which may be expected by UK businesses in 2023 due to the high inflation rates. To help with this, cross-border-centric marketplaces massively simplify execution of an international growth strategy.”

The role of flexible payment

Luke Ladyman, chief operating officer and co-founder of Cheddar, says: “The last few years have been a very bumpy ride to say the least. We made it through the pandemic only to then face a cost-of-living crisis and now a recession. As a result, 2023 will see the rise of a new breed of consumer who increasingly expects a personalised customer experience throughout their retail journey. 

“We should expect to see consumers flocking to retailers who offer payment flexibility options, to give them extra wiggle room when strapped for cash. Businesses will then up their game in order to captivate consumers and earn their loyalty. This change will be most visible with Gen Z consumers who are going through a very tough time, with many facing their first recession. This has spawned a much savvier consumer, one that is ultra-connected, engaged and pragmatic with their money. 

“As the retail industry continues to transform with the ride of ecommerce, businesses will need to invest in fine-tuning their digital experiences to honour customer expectations at every touch point. Consumers will seek added value and incentives from retailers, expecting to see a rise in money saving promotions, discounts and cashback opportunities when choosing where they’ll shop during these challenging times. The year ahead will see retail businesses encourage spending by providing tangible incentives, with cashback reigning supreme in the reward categories.”

Winning new customers

Alexios Blanos, UK business director at M-Cube, says: “Inflation will make customers more cost-conscious; there will be more pressure on marketers to attract consumers both online and in-store. As a recession looms, consumers will be more cost-conscious. To combat this, retailers will have to put in more effort to ensure that customers stay loyal. 

Retail sales decreased by 1.6% in August which is indicative of future sales in 2023. This means retailers will have to pull out all the stops to attract customers and ensure that their purchases are worth the money.  The next year will see an increase in installation of digital signage in stores and the addition of social areas in shops which will provide well-rounded shopping and social experiences.” 

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