In the news: 5 retail trends to watch in 2023

This article originally appeared on ConsumerGoods.com and RISnews.com

2023 is poised to start with a bang. The consumer is resilient. Travel is booming. Supply chains are improving. Shipping costs are moderating. The pandemic is easing. China is opening. E-commerce marketplaces are accelerating. New online and in-store experiences are once again in focus. CES is fully back. NRF is fully back. Major retail events are overflowing (e.g., ShopTalk, GroceryShop). Cyber Five (Thanksgiving–Cyber Monday weekend) is up YoY. And in a recent study conducted with EnsembleIQ in partnership with AWS, 87% of retail tech leaders shared that they expect to maintain or increase tech budget spend in 2023.

While inflationary pricing pressures, interest rate increases, and geo-political factors continue, focus on the customer and their shopping journeys are back front and center for retailers. Here are five retail trends to consider in 2023.

Retail media networks

What is a retail media network? It is a form of advertising that allows retailers to monetize their first-party data to better serve consumers with more relevant offers as they shop in digital and physical stores and through email/SMS, for example. As such, retail media promises better closed-loop attribution by being able to tie engagement across the consumer’s path to purchase on their properties.

Brands typically don’t have enough data to serve one-to-one messages to consumers at scale. Retail media allows them to create better consumer profiles for personalization by leveraging retailer first-party data in a privacy-safe way. Ultimately, this collaboration allows for better engagement with the always-on consumer/shopper across their path to purchase. This win-win-win proposition is strong enough to indicate that retail media networks are expected to grow faster than all other media except connected TV in 2023.

Retail media is an attractive business opportunity for many retailers where they display brand ads in store or on apps and e-commerce sites, or shared via external channels such as social media platforms. CPG brands are shifting advertising dollars to this “channel” to leverage retailers’ digital and physical channels to promote their products and make incremental sales as ads are placed closer to the point of purchase. In return, CPG brands receive new insights and analytics on ad effectiveness and can modify their broader advertising creative and strategy based on real-time results.

This is an exciting space to watch and one in which there may be plenty of innovation in the coming months. Retail media networks shift the dynamics so that the retailer is now the vendor, and the brand is the buyer. It builds a mechanism for collaboration across brands and retailers. For retailers to monetize their data in this fashion, they may have to build trust in the offer and provide verifiable results so retail media can generate incremental returns to brands. If included as part of strategic partnership discussions through Joint Business Planning (JBP) as another lever alongside driving trade, shoppers, and retail execution, it could allow for value creation opportunities for all.

Coresight Research estimates that the global retail media industry will total $75.1 billion in 2022, up 80.1% from 2021, making it one of the fastest-growing advertising channels. According to a survey conducted by McKinsey in June 2022, 82% of advertisers plan to increase their retail media spending in the next 12 months. According to Coresight Research’s August 2022 survey, among the U.S. retailers that currently have retail media capabilities, 52.6% attribute annual revenue growth of at least 10% to retail media, while 55.7% attribute annual EBITDA growth of 10%–30% to retail media. Retailers that have launched their own RMNs include Best Buy, Carrefour, eBay, Gap Inc, Home Depot, Lowe’s, Kohl’s, Kroger, Macy’s, Michaels, Nordstrom, Sephora, Target, Ulta Beauty, Wayfair and Williams-Sonoma.

Frictionless

Frictionless can apply to online e-commerce experiences or to in-store experiences. For this article, let’s focus on in-store. In the last 12-18 months, there has been a dramatic increase in new product and service offerings enabling a differentiated in-store physical shopping experience. We are in the early days of “frictionless” in-store retail experiences. Every shopping journey has points of friction and retailers want to remove as much friction as possible online or in-store (as long as it makes sense from a margin perspective).

First, “frictionless” should not be confused with “cashierless checkout,” which is similar but has a different goal. Cashierless checkouts are focused on lowering labor costs, typically through automation. Frictionless is focused on the customer’s needs and experiences. It may help reduce labor costs, but that’s not the goal. Oftentimes, it simply frees cashiers to do other tasks like help customers or restocking. And frictionless is not appropriate for every retail store scenario. Apparel, for example, is difficult for computer vision to recognize (computer vision can be an important part of frictionless checkout experiences). In other use cases, a scan-and-go solution might be sufficient.

Eighty-six percent of U.S. consumers have left a store due to frustration from long wait lines in the last 12 months, leading to more than $3B in lost sales from in-store abandonment. Eighty-five percent of shoppers cited checkout experience as very important or important, and yet only 23% of shoppers are satisfied with existing checkout line length.

Web 3.0 is an idea for a new iteration of the World Wide Web which incorporates concepts such as decentralization, blockchain technologies, and token-based economics. Some technologists and journalists have contrasted it with Web 2.0, wherein they say data and content are centralized in a small group of companies sometimes referred to as “Big Tech.” The term “Web3” was coined in 2014 by Ethereum co-founder Gavin Wood, and the idea gained interest in 2021 from cryptocurrency enthusiasts, large technology companies, and venture capital firms.

Web 3.0 and the metaverse are exciting concepts for retailers and yet retailers are struggling to incorporate the underlying technologies due to slow adoption, security and ownership issues. Retailers that desire to leverage metaverse with consumers will define Web 3.0 strategies in 2023 — and it will take a few thought-leaders to test, learn, adjust, and commercialize for others to become fast-followers. Coresight Research estimated that the value of retail sales in the metaverse and virtual stores to reach nearly $1B in 2030, with a significant early-adopter ramp between 2024-2026. Expect retailers to investigate and test in 2023.

Customer 360 (and thus customer data platform)

A Customer Data Platform (CDP) is a technology platform that creates a persistent, unified customer view (aka a single view of customer activity — customer 360). Data is pulled from multiple sources, cleaned, and combined to create a single customer profile. For example, think about your last online grocery shopping experience. You likely searched for multiple platforms before deciding on which service to use (Amazon Fresh or Instacart, for instance). You scanned for a few online recipes on different sites. You researched new food brands. You looked for online coupons. Throughout all of that, chances are you interacted multiple times with the company that you ultimately purchased from — through website visits, live chat, online ads, or email.

The customer 360 and CDP topics are front and center in retail today as retailers define strategies to manage customer data either with a centralized agency or bring back in-house to manage as part of a broader loyalty offering. CDPs are powering new loyalty strategies, solutions, and programs given the opportunity to know the customer, serve them where they stand, learn from them, and keep them engaged across channels and outlets. This is trending especially with convenience store leaders, grocers, and quick-serve restaurant (QSR) operators.

Mastering customer obsession starts with data — demographics, psychographics, transactions, purchase records, support cases, product usage, shopping habits, content preferences, paint points, and more. A recent Gartner report found that “less than 10% of companies have a 360-degree view of customers,” and “less than 5% use this view to systemically grow their business.” Further, Gartner found that the top technology area where CIOs are increasing investment is a “business intelligence or data analytics solution.” Forty-five percent of retail CIOs are increasing investment and only 1% are decreasing investment in this area. Expect the CDP solution focus to continue into 2023. Leading players here include Treasure Data, Salesforce, Segment, and Amperity.

Supply chain level-up

The last 24 months have shined a light on the strengths and weaknesses in our supply chains. Sourcing and procurement took the spotlight early in COVID and then again during the Ukraine invasion. Transportation and logistics (and overall supply chain strategy, including upstream and inventory visibility) took the spotlight during the China lockdowns, canal blockage, container and pallet shortages, then worker shortages (due to resignations and illness).

Retailers are investigating new and alternative technologies to support evolved and changing business practices, processes, and mechanisms. For the majority, existing methods of sourcing, supply chain visibility, and inventory management did not work with manual workarounds.

McKinsey did a survey in which just under half of the companies in their survey said they understood the location of their tier-one suppliers and the key risks those suppliers face. Only 2% had visibility to their suppliers in the third tier and beyond. I had the opportunity to experience this myself as I was working as part of Georgia Pacific’s global strategic sourcing and procurement organization when COVID hit. Supplier risk management and visibility quickly became priorities as we found alternative suppliers to meet customer and business continuity demands.

Retailers in 2023 will have the opportunity to take advantage of cost advantages in the supply chain. Given softening demand for modes of transportation, retailers will have the opportunity to take advantage of newfound excess market capacity. They will also be able to move to less expensive transportation modes where there is little-to-no impact on business performance or delivery times to warehouses and stores.

Retailers will also focus on supply chain “resilience” in 2023 — resilience: the capacity to withstand or to recover quickly from difficulties. The move to on- or near-shore high-demand/highly volatile goods will continue as organizations seek to be more reactive to demand changes without missing opportunities or carrying excess inventory.

In 2023, leading retailers will leverage last-mile delivery partners that offer more sustainable delivery options. In fact, most of the sustainable delivery options are actually lower cost. Thirty-nine percent of respondents in Descartes’ survey on consumer sentiment around sustainable delivery said they “regularly” or “always” make purchasing decisions based on the company’s or product’s environmental impact. Examples of more sustainable delivery include electric vehicles, Green delivery time slots, dark stores, and consolidation of deliveries.

Bottom line, supply chain remains No. 1 or No. 2 on the executive priority list in 2023.

Journey to the cloud

Many large-scale retailers have made significant IT investments in digital commerce — and in the wake of the pandemic, it’s largely paid off. But despite the rush to digital commerce, it’s still hard for many retailers to take full advantage of the new possibilities and the impact it’s having on consumer experiences. Even today, somewhat surprisingly, 80% of sales still involve physical stores.

To unlock the potential of digital commerce, retailers are seeking a fresh approach — and this will require new technologies and a new digital architecture, largely leveraging modern cloud-based solutions and services. It’s becoming clear that many current and legacy retail ecommerce systems — typically built in the form of “monolithic” applications — are hard to scale, difficult to manage, and don’t provide the flexibility needed to meet the buyer anywhere anytime. Pure-play retailers, especially the digital natives that started with a “cloud-first” approach, are taking advantage of the cloud’s ability to scale and engage with customers dynamically.

To match the competition and break new ground in the market, retailers will need to innovate faster and master an ever-evolving omnichannel operating environment that consumers now expect, indeed demand. The goal of every retailer is to provide the best possible shopping experience by reducing friction throughout the customer journey and merging traditionally distinct channels so customers can move seamlessly between them. This has long been the promise of “omnichannel” and it is key to building an agile and cost-effective digital commerce solution.

Increasingly retailers are migrating their legacy digital commerce platform to the cloud to take advantage of its power, versatility, and cost-effectiveness. Retailers are now equipped to modernize their IT infrastructure — and for most retailers, this means embracing an agile microservices architecture for their digital commerce platform.

Unlike traditional monolithic apps, retailers can use microservices to “decompose” applications into separate business functions — such as a payment process or loyalty benefits calculation — tied together by APIs. These functions can be rearranged or “composed” to build innovative new commerce applications at scale. Composable apps go hand in hand with “headless commerce,” an approach in which retailers separate their back-end services from their front-end experiences such as a point-of-sale system, an e-commerce website, or a mobile app interface.

Adopting composable and headless apps, powered by microservices, helps retailers unify and personalize the shopper experience, reduce maintenance costs, and gain greater business agility and innovation at scale. Developers can change, test, and deploy headless apps without impacting the rest of the solution, increasing agility and reliability. Migrating to cloud gives retailers a range of benefits, including on-demand scalability, improved flexibility, greater availability, and better security — all while lowering costs by up to 50%, per an in-house Amazon study. Retailers can then apply these savings to modernize the rest of the IT infrastructure to outpace the competition and widen margins.

Retailers can begin by lifting-and-shifting their legacy apps to the cloud, helping jump-start their journey to a modern digital commerce platform. They’ll garner savings in the cloud and maximize their existing investments on their way to adopting a modern retail architecture. Over time, retailers can progressively redirect investment into their microservices-based platform and systematically phase out their older monolithic systems.

Bottom line, cloud services help retailers by reducing infrastructure, storage, and computing costs while also enabling real-time access to operational performance data. Cloud computing enables access to real-time inventory visibility, ensures data security, enables global point-of-sale connectivity, integrates e-commerce and traditional store systems, enables new AI/ML personalization techniques, powers an improved end-user experience, enables dynamic pricing online and in-store, and fuels new, cross-channel loyalty initiatives.

Expect acceleration in the journey to cloud in 2023.

Buzzword bingo for 2022

Each year, I highlight the “hot” buzzwords across the technology and consulting-vendor-partner-sphere. This year’s highlights are: metaverse, web 3.0, immersive commerce, composable commerce, computer vision, AR/VR, virtual stores, AI-ML (consistently in our annual top-buzzword list), supply chain resiliency, CDP, frictionless (can be experience or checkout), seamless, smart stores, digital twin and of course, Cyber Five.

Bingo.