Five fundamental and enduring disruptions evident in the US will impact retailers everywhere, argue Bain & Company London and San Francisco partners Jonathon Ringer and Aaron Cheris.

rainy shopping street

Over the past 24 months, retailers have faced a seemingly relentless barrage of challenges, including rising costs, supply chain constraints and labour shortages.

These have all been compounded by the impact of Brexit, ongoing Covid-19 disruption, geopolitical uncertainties and the yet-to-be-determined effects of the crisis in Ukraine

All of this at a time when the sustainability imperative is changing the way retailers do business.

The industry has shown extraordinary resilience, creativity and leadership in the way it has responded and, despite the many challenges, retailers in markets around the world achieved strong growth over 2021’s golden quarter.

In the US, year-on-year growth across categories during the seasonal period reached 13.8% – the highest nominal growth in nearly 30 years. 

Shops reopened and, for the first time in 20 years, in-store sales grew faster than non-store sales. Growth was particularly strong in categories in which demand had been suppressed because of Covid-19 – apparel, for instance.

The year 2022 has brought with it a new set of challenges. The issues won’t be evenly distributed across retailers but, based on our research in the US, we believe that there are five fundamental and enduring disruptions that will impact retailers everywhere.

The five effects that will hit the industry

Firstly, in nearly every category, consumers are shopping with fewer retailers. Based on work we’ve conducted in the US with Advan Research, retail foot traffic dropped by 9% across non-food categories in November 2021 compared with November 2019, but store sales increased by 15%. 

Shoppers over the holiday period appear to have made more targeted trips and visited fewer stores for browsing, a clear indication that they are browsing online before going to the store to purchase. 

This trend was most marked in fashion, home and electricals. The shift toward more purposeful shopping is explained, in part, by a longer-term trend of narrowing shopper repertoires.

Research we’ve conducted with ROI Rocket over the past several years suggests that shoppers were already purchasing from fewer retailers long before the pandemic. 

“Omnichannel innovations have redefined customer expectations”

Secondly, digital tools have increased transparency on product pricing and availability, allowing customers to easily find the lowest prices, fastest fulfilment and in-stock items in real time. 

Thirdly, marketplaces are making broad assortments ubiquitous. That means it’s even more critical for retailers to focus on differentiated assortments as well as improved curation and discovery experiences that help consumers cut through the clutter.

Fourthly, omnichannel innovations have redefined customer expectations to encompass not only convenience and proximity but also a range of fulfilment options and a seamless, digitally enabled experience.

Finally, labour shortages have shifted power to undervalued employees, elevating the importance of providing a sense of purpose at work and increasing operating expenses.

What do these enduring changes mean for retailers?

The implications stretch across all functions of a retail business, from the commercial team to the operations team, from the chief technology officer to the chief human resources officer, from supply chain to marketing. 

All will require innovation and reinvention, all will need to refresh their understanding of target shoppers and their motivations, and all will need to embrace new digital tools to improve their effectiveness and efficiency while addressing the mounting sustainability issues.

The old ‘retail-is-detail’ paradigm that pushed executives to boost profits by executing tired playbooks with a single focus on ever-increasing efficiency is obsolete. 

These days, stakeholders expect retail chief executives to turn chaos into inspiring visions. They want them to create loyal customers, engaged employees, transformative technologies and sustainable environments – all without sacrificing a penny of profit. 

For today’s retail CEO, purpose and visionary leadership have never been more critical.

Jonathon Ringer is a senior partner at Bain & Company and a leader in the global retail practice. Aaron Cheris is a Bain & Company partner based in San Francisco. 

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