Retail

Quarterly Update

OCTOBER 2022

The quarterly update focuses on what's driving the industry right now, it therefore is focused on immediate priorities. Articles and sources that illustrate the current status are shown as footnote links. The update is therefore less concerned with longer-term trends, which are covered in the main industry profile, and may generate more transformational conversations.

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Drivers

The decline in the economic situation fuelled by inflation [1], energy cost increases, tight labour markets and reducing consumer confidence is hitting demand and ultimately profitability.

Short term necessities may push other drivers temporarily down the priority list.

Demand

DECLINING - Retail sales are falling in the face of an cost-of-living led economic slowdown [2,3]. Online sales have also slowed due to shopping habits returning back towards the physical store [4].

Customer Experience

VALUE - Consumers are "trading down" and are more focused on value [5,6]. The Convenience segment is expected to grow more strongly and is seeking strong investment [7,8,9].

Sustainability

CONTINUING - Sustainability is the new normal [10]. Investment is in both emissions reduction and particuarly resale, rental, repair and refill concepts [11,12,13,14,15]. However, the recession may cause an investment slow-down.

Innovation

DELAYED - Innovation is spanning robotics [16] and the metaverse [17]. Forward looking retailers will continue to innovate but the inflation-driven margin squeeze may slow others.

Profitability

CONCERNING - Reducing profitability will drive inevitable cost-cutting measures [18,19,20,21,22].  Even Amazon shares dropped 20% in antiipcation of lower sales [23]. Like during COVID, the weakest performing retailers may fail [24].

Transformation

Delivering a sustainable digital retail ecosystem requires a seamless omnichannel experience for consumers, across the online and store estate and through the supply chain.  However, financial performance imperatives may drive focus in the short term on transformation activity that delivers more immediate returns such as increasing footfall, conversion or improving margins.

Personalised Engagement

CONVERSION -Mobile’s share of total retail sales continues to grow and consumers look to retailers mobile apps to deliver a seamless omnichannel experience [a]. AI is also playing a role in customer engagement [b].

Online Scale

MARGIN - Post pandemic growth has slowed but marketplaces remain important [c]. Pure play online retailers have been particularly hit as costs have surged [d], leaving them vulnerable [e]. Increasing profitability has seen retailers increase costs for returns [f].

New Store Role

FOOTFALL - Retailers have continued to right-size their store estate [g]. Many are launching new store formats [h,i] and targeting the convenience segment [j,k]. Creating omnichannel profitability will still require further investment such as automation [l].

Sustainable Supply Chain

RELIABILITY - Supply chain disruptions remain a top issue but is slowly improving. This has impacted inventory management leading to over/under stocks [m] and a need for better visibility [n]. The next supply chain challenge is climate change [o].

Recession is a threat to the shift from the 20th century store model to an experience driven sustainable digital retail ecosystem.

Technology

Global retail technology investment dropped 43% to $13.2 billion in Q2 2022 compared to about $23 billion in Q1 2022. This is concerning as financial performance imperatives may drive focus on transformation activity that delivers more immediate returns such as increasing footfall, conversion or improving margins.

Mobile is a critcial development area to deliver the seamless omnicahnnel experience [i]. One emerging area of innovation is the metaverse [ii].

The cloud is now mainstream for retail and partnerships with the hyperscale cloud providers deliver transformation and access tools beyond just the cloud infrastructure [iii].

Retailers are leveraging cloud  for data & AI, e.g. H&M using Google Cloud to develop an “enterprise data backbone” including AI and machine learning (ML) capabilities [iv].

Mobile is a critcial development area to deliver the seamless omnicahnnel experience [v]. 

The new normal is a digital workplace to deliver  omnichannel.

RFID is a key enabler of omnichannel retail helping to  improve inventory visibility and accuracy, but also enabling contactless check-out capabilities [vi].

The cyber threat remains high with the impact of attacks spilling over into financial performance [vii]. Fines are also significant for data privacy failures [viii,ix].

Sainsbury's provides a good example of how IT Governance drives productivity and delivery [x].

Implications

Key questions to ask retailers to understand how the latest trends are impacting them.

  1. How will decreasing retail sales and lower consumer confidence impact existing and future plans? What are the priorities now?
  2. What business metrics are most important for you right now, for example conversion or footfall?
  3. What are the areas of focus for cost-cutting? How can technology support these initiatives?
  4. What are the priority technology investment areas and projects? What are the outcomes the business is seeking?