After surprise success in 2022, what should retailers expect from the year ahead? A rebalancing of sales channels, hybrid business models and the right marketing mix all have a part to play in success this year, believes PwC’s Lisa Hooker
So the golden quarter is over for another year. Despite the rising cost of living, falling consumer sentiment and much nervousness around spending in general, it turned out to be quite a positive surprise for many.
We saw store closures slow, a stronger Black Friday and Christmas trading defy expectations.
Early Christmas predictions were gloomy, with warnings of cautious spending from consumers leaving the run-up to the day a concern.
But, in reality, people spent the same as last year, with fashion, health and beauty, energy-saving home accessories and value players among the big winners.
While volumes declined, we also saw value go up and more pounds in the till overall. For many, a return to the first ‘normal’ Christmas post-pandemic led to them spending more than anticipated.
“Many people returned to the high street and we saw good results for brands in the right location and across multiple channels”
I was an example of that myself. Knowing I was due to spend my first Christmas in a while with extended family, I spent more than I usually would – mainly on gifts, games, food and drink.
My daughter and I even took a trip into London beforehand to buy outfits for our Christmas Eve night out in Blackpool.
Many people returned to the high street, helped by younger shoppers’ love for stores, and we saw good results for brands in the right location and across multiple – and sometimes unexpected – channels, including other retailers’ stores, websites and marketplaces.
The much-publicised delivery disruption this year meant certainty and assurance were important for consumers, whether concerning opening hours, convenient click and collect or the innovative use of technology to ensure delivery.
Consumers also placed great importance on value for money, particularly factors such as quality, price per use, innovation and an assortment range that allowed them to trade up and down to match their finances.
And we saw a polarisation of shopping spend with premium/finest and value/discount ranges both performing well for different reasons.
Renewed focus
As we take stock, it’s important to think about the year ahead, particularly considering that much of the volatility will remain and consumer spending cannot be guaranteed. As I finished writing up PwC UK’s Retail Outlook 2023, I was left to ponder: what do retailers need to focus on?
I’ve written previously about navigating inflation and embedding resilience to manage future shocks, as well as capitalising on accelerating and emerging trends.
This advice remains as relevant as ever, particularly the ability to flex customer proposition, carefully monitor stock levels, look after staff and manage cash as demand fluctuates.
But also of critical importance will be the ability to rebalance marketing and sales channels, particularly in the face of new privacy regulations, changes to social media algorithms and the rising cost of customer acquisition.
“Reaching new customers and engaging existing ones will require hybrid business models”
Retailers will have to work harder this year to persuade people to shop. Getting marketing and communications right can be a significant differentiator but what is the right marketing mix, which channel and where is the highest return – existing or new customers?
Reaching new customers and engaging existing ones will also require hybrid business models, combining online and offline shopping and adding unconventional or unexpected options for shoppers.
That may require an exploration of channels, such as marketplaces, resale or rental platforms or social. Those in channels that may not be growing as rapidly, for example, would be wise to explore partnerships as a way to grow into new areas or unlock a different demographic or market.
We’ve seen this recently with pureplay online retailers seeking to partner with physical retailers to stock their ranges in stores.
All of these actions must be considered alongside a longer-term imperative to change how they operate or do something beyond the ordinary.
Our UK CEO Survey recently revealed that 22% believe their business will not be economically viable within a decade on its current course, while 10% believe they have less than three years.
Getting ahead of this will require investment throughout the cycle – organic or through M&A – particularly in areas such as technology and organisational capabilities.
That said, I’m cautiously optimistic about the year ahead. It may not deliver the surprise success that we saw in 2022, but there will be opportunities for retailers that get it right.
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