Retailers should embrace the changing consumer and consider strategic investments that could enable profitable growth during inflationary times
Change can be good, but constant change can be daunting. Retailers today are feeling the hangover of such volatility occurring in the most condensed time frame of any recent business cycle. Retail executives are preparing for the tides to shift again in 2023 as the reality of economic headwinds, geopolitical strife, a rapidly changing consumer, supply chain disruptions, and lingering labor issues come into play. As we head into the new year, only one-third of retail executives surveyed are very confident about maintaining or improving profit margins in what are expected to be turbulent times.1
Of course, many of their top concerns are beyond their control. Notably, nearly all executives surveyed expect inflation to pressure their profit margins. Six in 10 respondents expect inflation to raise operating costs, and while passing higher prices on to consumers has been the norm, many question how long they can continue the trend. These retail executives are also predicting hard times for consumers, with nearly all anticipating diminished consumption in 2023, resulting from rising financial concerns.
In addition, many retailers face difficult year-over-year comparisons from nesting preferences during pandemic lockdowns that created a strong durable goods cycle. Other retailers benefited from government stimuli and consumers returning to work and school and are now left forecasting and providing guidance based on trends that can be difficult to decipher, if structural or episodic.
But the retail outlook is not all gloom and doom; retailers have learned much about resiliency in the past few years. Massive demand fluctuations during the pandemic forced retailers to rethink archaic systems in favor of more pliable operations. Seemingly overnight, retailers rolled out health and safety protocols and established omnichannel capabilities. And they learned that rapidly evolving consumer preferences require more effective analytics and tools to build loyalty. If anything, the past few years should give executives confidence in their ability to weather the next storm.
The work for executives in 2023 is to advance the innovations created during the pandemic: to drive more profit from the curated experiences, last-mile options, and conveniences that retailers rolled out—all at a time when the purse strings may need to tighten.
To check the pulse of retail executives, we asked 50 leaders about their expectations regarding challenges and opportunities in the upcoming year. We wanted to better understand what traits separate leaders from the rest of the pack and analyze planned strategies and investments for 2023. The results provide a unique outlook on how today’s market, future expectations, and changing consumer needs inform strategies for the year(s) ahead.