Present day retail industry is facing a level of volatility that has never been seen before during the short span of time instigated by the COVID-19 pandemic. 2023 will be another challenging year for retailers with inflation, rapidly changing consumer behaviours, supply chains, and labour shortages. According to Deloitte’s research study in the United States among a sample of 50 retail industry executives in 2022, almost all executives foresee inflation to cause problems to their profit margins among whom only one-third is very confident about maintaining or improving profit margins and expect lower consumer consumption in 2023 due to increasing financial concerns. On the other hand, the difficult time also has a positive impact on the retail industry in expediting agile operations and business restructuring. This article will address the expected challenges in 2023 and the positive notes the retail industry learnt during the past few years.
Retail business will likely be impacted by the two main challenges: financial headwinds and changing consumer behaviours. First, there is a probability of a recession which will lead to a slowing economy and increasing unemployment. Furthermore, the expected 5% inflation in Thailand has aggravated the financial impact as the consumer’s purchasing power decreases despite gains in income. The financial factors are expected to lead to consumer spending contraction and lower profit margins for retail businesses that fail to adapt in time. Second, distinct changes in consumer behaviours can be found over the past few years. Consumers now expect and value purchasing convenience with a shift in preference from traditional brick-to-mortar stores to online shopping or metaverse platforms. The availability of information at your fingertips also makes it easier for consumers to be well-informed and conscious of their price and product comparison before any purchase. Based on the same Deloitte survey, two-thirds of surveyed executives expected price to play a more important role than brand loyalty, increasing the predicament of price increase potential due to supply shortage and inflation. Moreover, the market has now become more diverse and inclusive. Younger generations of consumers who are replacing the older generation have been exposed to and preferred companies that adopt ESG (environmental, social, and governance) and DEI (diversity, equity, and inclusion) practices. Understanding the financial situation and adaptation to consumers’ changing preferences is therefore pivotal to the future retail industry more than ever especially since certain a number of retail products are not necessities that consumers may revisit should the economic downturn become evident.
In terms of the valuable lessons the retail industry obtained during the past three years, a financial analysis study of 100 retailers has provided insights into common traits among top performers. The two key features shared across top retailers are supply chain maximization and pre-pandemic investments in e-commerce and digital platform. Firstly, supply chain disruption and post-pandemic supply shortage will continue to cause problems for businesses. Retailers who can adapt to the limitations and offer services special such as last-mile capability than peers will have an advantage. During the pandemic, a number of retailers offer free shipping and extra services such as one-day shipping to have advantages over other retail peers. Customers became familiar with such last-mile offers and as the preferences for convenience are expected by all surveyed executives, retailers are left with questions of how to balance the extra costs of last-mile capability and the business loss possibility. Investment in automated fulfilment centres to increase storage capacity and throughput rates as well as decrease the number of headcounts can be explored for enhanced efficiency. Secondly, more than half of the executives taking the survey voiced their belief in continual growth and the top growth opportunity in digital commerce and social media platforms. The platform with social influencers presents new target consumers as changes result in new preferences, needs, and demands. The main digital media users as in the younger generations also constantly gain more purchasing power as they grew into working ages. Early venture into digital e-commerce and social media platform should be attractive to capture the market and acquire loyal customers early. Working with influencers can also produce branding efficiencies. Having products advertised by content creators can lead to trust, interest, and love toward a brand while gain access to potential consumers or new groups of audiences. Retailers, however, should be cautious in influencer selection as influencer controversies can expose brands to risks and potential backlashes. A strategy for diverse influencers should help mitigate such potential ramifications.
In summary, the key to success in the retail industry is and has always been resiliency. The world is recovering from the worst global lockdowns and shortages that highlight the importance of business agility and adaptability. The pandemic taught retailers to not simply rely on traditional cost-cutting in order to protect margins and gain higher profitability but rather explore new business opportunities as the potentials in supply chain maximization and digital commerce were discovered. Creating and ensuring that the changing consumer demands are consistently met is a crucial factor in the fast-changing world.
This article was written by Choopong Surachutikarn, Partner, Audit and contributed by Malee Ekviriyakit, Senior Consultant, Clients and Markets, Deloitte Thailand