The writer is the director of commerce at Salesforce Israel
Has global inflation peaked, or are we headed for a recession? Will the housing crisis have a ripple effect? Has the marketing industry weathered the latest supply chain meltdown? Will the recent chain of interest rate hikes stop? These are just some of the questions retailers are asking themselves today.
However, while retailers grapple with the “what ifs,” they still have an appetite for turning every difficulty into an opportunity. So it’s true, government subsidies will dry up, budgets will be tighter, and apparently a lack of skilled staff will continue to be a major point of failure. Still, retailers who focus on a handful of projects, strengthening infrastructure and polishing the customer experience, are expected to move the profit needle to the right.
As every year, the largest retail conference in the world, the NRF, took place in New York this January. About a thousand exhibitors participated in the largest conference since the outbreak of the Corona epidemic, and over 40 thousand representatives of the retail industry from around the world.
For three days, the most important and interesting issues for the industry were presented and discussed – those that it has faced in the past year, and those that it will face in 2023 as well. Here are the developments that will shape the retail world in the next 12 months, as they came up at the conference.
The strengthening of AI in retail
In recent years, much progress has been made in the field of artificial intelligence, and new and improved AI applications in a variety of fields have made this technology essential for retailers. But why exactly in 2023 will they take the lead? The answer is partly related to advances in quantum computing chips. Chip manufacturers such as Intel and Nvidia are collaborating and/or developing advanced chips, which according to reports should herald very high level computing capabilities.
In retail, until now much of the technology powered by AI – such as chatbots – has not been very relevant. Now the next generation of artificial intelligence computing power is gaining momentum, and experts believe that retailers will be able to deliver personalized and relevant digital marketing messages, powered by first-party data, that will lead to conversions.
The boom of small shops
The idea of moving to smaller stores is not new, but early success stories provide impetus for others to test whether the adage “Small but Mighty” is relevant.
Over the past two years, following the return of shoppers to physical stores, retailers have opened stores at a faster pace than expected. At the same time, the days of the standard stores of yesteryear are history.
Today’s new buildings provide a competitive advantage with a precise combination of awareness of the neighborhood in which they are located, a higher awareness of the environment, and a customized inventory selection. Thus, for example, the giant Macy’s department store opened concept stores under the MARKET brand, Bloomingdales opened Bloomies and more.
What stands out more are the collaborations between some retailers and big brands through smaller representation in big stores. Thus, for example, Sephora announced plans to open stores in 850 Kohl’s branches in the coming year. Another example is Toys R Us, which partnered with Macy’s for toy stores during the holiday season.
In contrast to these is Best Buy, which adopted a different approach in a smaller format, with the introduction of the first showroom/digital stores, one seventh the size of a traditional Best Buy store. This is a store that includes a curated selection of items to encourage the customer to do everything – starting with the purchase, choosing the product and receiving advice – digitally, and collect the item in the existing locker outside the store.
Changes in the supply chain
Purchasing managers returned to breathing normally around mid-December 2022, and it seems that the collective sigh of relief will continue for the next 12-18 months. This does not mean that the challenges are over, but the focus has shifted from 24/7 operations in a crisis situation, to investing in technologies that allow higher accuracy and visibility of the inventory, with the aim of getting a more complete picture of the life cycle of the goods.
In addition, the concept of nearshoring (outsourcing of manufacturing, warehouses, etc. to other companies) continues to grow, as businesses look for future protection against disruptions, although changing supply chains built over many years is a huge and difficult task.
Retailers also recognize that robots can be a powerful means of reducing risk and increasing efficiency, but are still cautious. In 2023 deliveries by autonomous vehicles will increase, and more robots will co-exist with human workers in warehouses. However, we are very far from realizing the full vision.
The Alpha Generation Challenge
Generation Z is the generation to which all retailers direct their focus, but it is also necessary to pay attention to the group that will replace them. According to experts, the Alpha generation – born from 2010 onwards – will include more than 2 billion people by 2025 with enormous collective spending power. These young shoppers will have a disposable income of $360 million a year, and by 2030 they will make up 11% of the global workforce.
Most of the alpha generation are the children of the millennial generation. While experts say that members of this group tend to maintain a close relationship with their parents, there are striking contrasts. Millennials are considered the first digital children. Their successors, Generation Z, grew up when social media took root, and use it today to express themselves.
For the Alpha generation, social media is a way of life; It’s where they learn the latest trends in everything from health and fashion to eating, and where they’ve come to the conclusion that young people have more power than any previous generation.
What does this mean for retailers? that new ways of interacting with this emerging generation are expected. Experts describe them as wanting to be active participants, along with wanting to take part in finding solutions—two traits born of early and frequent interaction with video games. It also indicates that they will want to have relationships with brands, and not just passively consume.
Still looking for inspiration
It is difficult to predict how buyers will feel or react, since what they say and what they do can be two very different things. What is clear is that buyers are worried about talk of a recession, and anxious about the rise in prices associated with inflation. They certainly took advantage of the endless deals and low prices that retailers offered this past holiday season, but it doesn’t look like they’ll continue the spending spree.
Experts believe that if the fear of recession increases, shoppers will buy fewer things, but no one expects them to compromise on quality, value and durability. The desire to be inspired by brands and retailers continues to reign supreme among shoppers—especially as they experience a constant stream of new interactions from media and technology.