‘Retailers are getting squeezed’ by price-weary consumers, supply chain costs: report

Dive Brief:

Following macroeconomic challenges in 2022, factors such as a slowing economy, diminished purchasing power and a shift in consumer behavior favoring experiences will impact retail sales in 2023, according to an outlook report Deloitte shared with Retail Dive.
The report, which included a survey of 50 industry leaders, found that two-thirds of executives expect price to be more important than brand or retailer loyalty. Almost all respondents said that changing consumer sociodemographics — which include being more digitally reliant, sex-positive, multi-ethnic and less financially secure — will be a challenge for retailers during the foreseeable future.
As “retailers are getting squeezed from both sides of the value chain,” executives said they will choose to focus on margin enhancement opportunities above dealing with increased ESG scrutiny. Over half of Deloitte’s respondents said they are planning minimal or no ESG investments.

Dive Insight:

With nearly all of Deloitte’s surveyed executives expecting inflation to pressure profit margins, and six in 10 expecting it to raise operating costs, 2023 is looking turbulent. Nonetheless, the “retail outlook is not all gloom and doom,” according to the firm.

“Despite the spate of bad economic news, the keyword among retailers is resiliency. They’ve done it before — not too long ago, during the worst pandemic-related lockdowns and shortages — and they can do it again. Market challenges will always be a factor, and retailers are learning that they cannot rely on traditional cost-cutting alone to navigate the latest downturn,” said Deloitte’s report. “Instead, retailers should examine how they’ve been most productive in recent years, honing omnichannel, supply chain management, and digital commerce to protect margins and aim for profitability in the future. And the real X-factor is the rapidly evolving consumer.”

On the list of retailers’ biggest concerns this year, a majority of respondents (seven in 10) said that labor was their number one challenge heading into 2023. Additionally, experts mentioned that retail theft often increases during times of economic distress, and almost all executives expect diminished consumption caused by consumer hardships this year.

Looking at how to stay ahead during the year, Deloitte said advancing innovations from the COVID-19 pandemic would be key. Making major investments in modernizing supply chains, improving last-mile delivery with automated micro-fulfillment centers, as well as creating more seamless and automated return processes, were listed as imperatives for profitability.

For a majority of surveyed executives (six in 10), improving digital commerce is seen as a top growth opportunity. Social commerce could be a key focus as well, with 60% of Gen Z having planned to use social media during 2022 holiday shopping.