2022 has brought new challenges for the retail industry as consumers cut spending due to rising inflation and the cost of living, and retail brands suffer from supply chain issues and other lingering effects of the pandemic. According to the ONS, online retail sales fell 2.8% in November 2022, which it says continues the downward trend seen since early 2021.
While online retail sales are still higher than pre-pandemic levels, 2023 is expected to be another tough year for brands as broader pressures affect consumer behavior.
So, amid all of this, how will retail brands target consumers? From pricing to wholesale partnerships to advertising spending areas, these are four trends that could shape omnichannel retail in 2023.
Multi-channel loyalty programs
Inflation has taken a toll on retail in the post-pandemic period. New data from Barclaycard shows UK retail spending fell 0.8% in 2022 from the previous year as inflation reached its highest level in 40 years. Consequently, we are likely to see deeper discounts across the board in the first few months of 2023 as retail brands attempt to move unsold items both online and in stores.
We are also seeing consumers increasingly turn to value or discount retailers in an attempt to spend less. For example, B&M like-for-like sales grew 6.4% in the fourth quarter of 2022, indicative of current discounter demand. As such, retail brands (across price points) are refocusing on retention, with many improving or redefining omnichannel loyalty programs to offer consumers added value and keep them from going somewhere else. Of course, loyalty means more than just traditional discounts; An omnichannel loyalty program should offer value throughout the customer journey based on insights into customer data such as purchase history, preferred channels, and demographics.
One example of this is Petco, which recently combined its two existing two loyalty programs under one “Vital Care” offering so that all members (both free and paid) can access benefits and rewards through their website, app Petco and Petco Pet Care Centers in the USA. It also follows Petco’s expansion of its premium loyalty program to include small pets such as birds, hamsters and reptiles in a bid to win customers from pet care rivals Chewy, Walmart and Target
Target Circle is another example of a multi-channel loyalty program that has already been a huge success, with over 120 million members since its launch in 2019. The program is part of Target’s “personalization at scale” strategy, which offers customized promotions, services, and benefits based on individual needs and preferences. Target also shares its loyalty data with its own retail media agency, Roundel, to create targeted ads.
Emerging store formats
According to a survey by Shopify and Ipsos, 82% of businesses are confident physical stores will continue to play a major role in the future growth of commerce. Indeed, since restrictions were lifted, physical retail has bounced back and has grown at a faster pace than e-commerce in 2021. with digital channels. In his latest Commerce Trends Report, Shopify’s director of retail and messaging, Arpan Podduturi, states that “online and offline are essentially one continuous experience. Very few people walk into a retail store without doing their homework. They usually started with their phone. They follow some brand and go shopping purposefully.”
Indeed, the C&IT Connected Retail 2023 report shows that consumers are now shopping digitally and physically at nearly the same price, and therefore consumers also want similar experiences in online stores and brick-and-mortar stores. Reliable inventory, easy returns, and efficient shopping journeys were found to be the most valued aspects of user experience by consumers.
One retailer that is accelerating its omnichannel strategy is M&S, as part of its broader goal to empower shoppers to shop the way they want to — online, through pickup or in-store. Part of this is its “store rotation” program to modernize key stores in cities, close less productive stores, and further invest in digital technologies. Steve Machin, chief executive of M&S, explained in the company’s Christmas sales announcement that M&S has already seen the benefits of this strategy. “Our new full-line stores and refurbished stores exceeded expectations, while click-through and pick-up orders increased by 20%, and the competitive advantage of the M&S multi-channel platform was demonstrated by third-party brand sales growth of approximately 50%,” he said. “This was driven by a significant increase in the number of monthly active users of the application to 5 million.”
IKEA is another example of a retail brand that is evolving its store format to better fit omni-channel shopping by upgrading its larger stores to also act as distribution centers. Commenting on the opening of new stores in Canada in 2022, Tolga Onku, Retail Operations Manager of Ingka Group, said: “Globally, about a third of our sales are done online, and our physical stores play an important role in this multi-channel reality. As consumer behavior changes, so do we as a retailer. We are upgrading many of our large stores to deliver customer orders in a faster, more affordable and sustainable way.”
Ikea has also opened smaller stores in cities like London and Copenhagen, allowing shoppers to order online and pick up at more convenient locations. This strategy appears to be gaining traction elsewhere as well. Retail brands including Barnes & Noble, Target and Macy’s continue to resize stores as they seek to improve omnichannel strategies, according to a Placer report.
In addition to serving as click-and-collect locations, other benefits of smaller stores range from being able to target more specific demographics to being able to experiment with new destinations and create a more personalized shopping experience. Placer cites Macy’s as an example of success: its smaller Market by Macy’s store saw an 11.5% month-on-month increase in traffic in October 2022, while traffic to its larger Macy’s store grew just 4.5% in that year. same period. period.
DTCs address marketplaces and 3rd party mix
As physical retail grows, e-commerce is slowing down, or at least normalizing to pre-pandemic levels. As such, Business of Fashion and McKinsey’s State of Fashion 2023 report suggests that the profitability of consumer-facing channels is suffering in part because of narrow product offerings that brands struggle to generate customer loyalty and repeat purchases. This is exacerbated by various other issues, including high return rates, the high cost of digital marketing, and Apple’s iOS privacy changes that limit the ability of brands to measure the effectiveness of social ads. Last year, an analysis of big tech DTC public companies with a market capitalization of more than $800 million found most of them to be “grossly underperforming” due to “reduced revenue, shrinking margins, runaway losses, or a combination of all three.”
To mitigate these issues, we may see more direct-to-consumer brands diversify in 2023 as they look for alternative revenue opportunities. One way to do this is to partner with third-party retailers or wholesalers, which can help both the brand and the retailer create value. Examples we’ve already seen include Glossier and Sephora, Allbirds and Rei — both DTC brands hope to increase awareness and increase sales. Beauty Pie founder Marcia Kilgore also told Econsultancy last year that the shift to wholesale could be on the cards, mostly to serve customers who don’t want to become members. “So we’re thinking, ‘What does that mean in terms of distribution methods outside of our website?’ she asked. “Especially in times like these when it’s getting harder and harder to find new customers with the ‘algorithm’.
In addition to wholesale retailers, DTC brands also partner with online marketplaces. As with selling in physical stores, the main benefit is again increased visibility and potential online sales. For example, last year Peloton expanded its partnership with Amazon UK to allow customers to buy its products on the market.
Not only DTC retail brands are considering the benefits of marketplaces. A number of retailers have also launched their own retail platforms in an effort to expand their product range and offer consumers even more choice. Superdrug, B&Q, Farfetch, Walmart and Macy’s have done so in the past year, which could lead to further market expansion in 2023.
Intersection of STV and retail media
Marketplaces like Walmart are generating interest not only as a sales channel but also for promotional purposes as many retailers continue to expand their own retail media networks. The market is becoming a huge growth area led by big players like Amazon, Kroger and Amazon. BCG predicts that the market will grow at 25% per year over the next five years and will account for over 25% of total digital media spending by 2026.
However, retail media has not yet caught up with connected TV, which is projected to surpass linear TV by 2024. shifting spending from display ads to video streaming ads. An existing example of this is Walmart’s partnership with Roku, which allows Walmart to deliver buyable ads using its own data directly to Roku devices. For Roku viewers, this means they can buy and pay for Walmart products without switching to another device or channel.
Other developments in this area include the announcement by OTT and CTV company Strategus that it will launch a retail media network solution in 2022 to enable advertisers to maximize and accelerate the impact of using their own data in CTV campaigns.
Elsewhere, Kroger has also added CTV to its retail media offering, allowing retail brands to target consumers using Kroger’s own sales data. Kara Pratt, Senior Vice President of KPM, explained the benefits in a press release. “Today, streaming is the main way to watch TV,” she said. “This means that most of the TV hours can now be optimized in software. Our retail sales data accurately reaches households — for example, past or infrequent buyers of a brand — and then correlates ad exposure with in-store sales to measure brand impact.”
Indeed, the highly compelling nature of TV advertising, combined with retail media’s ability to permanently close the cycle, could be an unbeatable combination — and one area of digital media that will drive advertising spending in 2023.