Deloitte Reveals Retail Industry Outlook for 2023
Constant change is expected to continue in the new year, according to Deloitte’s 2023 retail industry outlook, which encourages retailers to “embrace the changing consumer and consider strategic investments.” Profitable growth is possible even during inflationary times.
To determine the pulse of retail executives and gauge what traits separate leaders from the rest, Deloitte asked 50 leaders about expectations regarding challenges and opportunities in the upcoming year. The questions were also aimed at analyzing planned strategies and investments for 2023.
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According to Deloitte’s findings, the current sentiment is a bit shaky as retailers continue to deal with volatility after undergoing an immense amount of change in a condensed time frame. Only a third of retail executives told Deloitte they are “very confident” about maintaining or improving profit margins this year.
Many of the concerns cited are ultimately beyond what executives can control and nearly all executives surveyed say they expect inflation to pressure profit margins. Sixty percent of respondents shared predictions for inflation to raise operating costs. And while it has become the norm to pass higher prices on to consumers, many questioned how long the trend will be able to continue, noting hard times for consumers. Nearly all (80 percent) of the respondents agreed they anticipate consumption in 2023 to diminish because of rising financial concerns.
At the same time, retail theft is expected to rise, posing a threat to retailers.
This changing consumer, Deloitte said, will be a key challenge in 2023. Two-thirds of executives say they expect price to be more important than brand or retailer loyalty and 90 percent say consumers will expect seamless shopping experiences across all channels.
Put simply, consumers expect the best price in the most convenient way possible. Retailers have offered many services, including same-day delivery and curbside pickup, to guarantee an excellent customer journey — but meeting consumers wherever they have been costly. The authors of the report shared that with this fulfillment acquisition costs increased by more than 60 percent between 2013 and 2018 and say acquisition and retention costs are still rising.
Looking a bit further into the future, Deloitte predicts that over the next decade, consumer sociodemographic shifts will occur at an unprecedented rate and will create ever-expanding and diverse needs and desires. The changing consumer is getting older, more obese, multiethnic, gender-positive, sex-positive, sexual-identity authentic, mobile, more digitally reliant and less financially secure. Higher expectations also include the need for companies to uphold higher ESG and DEI initiatives.
ESG is also predicted to continue to become increasingly important to consumers. Surprisingly while 60 percent of retailers told Deloitte that the industry will face increased scrutiny on the topic, more than half said they are planning minimal or no ESG investments.
Another key issue facing retailers in 2023 is predicted to be labor issues — cited by 70 percent of retailers to be the number-one challenge this year with hiring and retaining employees becoming a lingering issue and competition for hourly workers remaining fierce. According to Deloitte’s report, as of Nov. 30, 879,000 retail jobs remained unfilled. To fill roles, many retailers have been forced to offer higher wages and more flexibility.
At the same time, 70 percent of retailers say that supply chain disruption will impact growth in 2023. To address these challenges, 80 percent of executives told Deloitte they plan to make moderate-to-major investments to modernize their supply chain this year. Notably, in examining what made certain retailers come out as leaders, Deloitte found that “pre-pandemic investments in e-commerce, expanding omnichannel capabilities and optimizing portfolios to manage costs were all common traits of outperformers.”
When discussing potential growth opportunities, 60 percent of executives said they expect to see strengthening digital commerce offerings with another 60 percent anticipating consumers using social media platforms to purchase products directly. To grow social commerce, 70 percent of executives predict that retailers will collaborate with social media networks and influencers.
