This is the first in a series of articles from members of Retail Wire’s Brain Trust panel speculating on coming retail trends and developments for 2023.
The year 2023 is going to be better at retail than expected (that doesn’t mean great, btw) especially for those companies that appeal to the higher and lower ends of the market. Those catering to the middle will likely have a tough go of it.
We’re likely to see a continuation of recent trends, with lower income consumers moving to discounters and off-pricers to stretch their dollars spent on necessities. Higher income folks (who won’t feel the woes of a potential downturn anywhere near as much as the aforementioned) will continue to spend, albeit also for less frivolous goods.
The national job numbers are high and likely to remain that way. Unemployment is low (even with tech companies laying off thousands), sentiment is okay and the general mood from consumers we speak with is not gloomy at all.
So what will happen?
We will start to see more showroom stores, like the new Best Buy models. There are plenty of advantages built in with showrooms, including lower build-out costs, reduced labor/payroll, less on-hand inventory, and lower rent and next day shipping charges, which make this type of investment sort of a no-brainer.
More and more retailers will settle into smaller spaces for the reasons listed above, plus the advantage of getting into more attractive “neighborhood” or high street locations, like J.Crew, Target and Amazon.com (with its c-store concept).
Resale/used/circular retail (pick a moniker) is set to explode. WD Partners’ recent study showed that consumers are receptive to visiting “used” areas in every retail vertical, including big box, consumer electronics, hardware, department stores and, of course, specialty retail. Everything is right about it; fun to shop, good for the environment and inexpensive to boot. When the operational elements are figured out, look for used to be a driving force in retail for years to come.
DISCUSSION QUESTIONS: How do you think the national economy will affect consumer behavior and retail in 2023? Will showroom locations, smaller stores and resale become more prominent over the next year?
Mark Ryski, Founder, CEO & Author, HeadCount Corporation
There are many puts and takes, but overall it’s heading in a positive direction. What does appear to be true is that consumers are coming back to physical stores and their shopping behaviors and expectations are continuing to evolve — and so too are physical stores. I expect to see many more store designs build for mini-fulfillment services (a la Target), and resale will continue to gain traction as the combined influences of inflation and sustainability converge. As for store size – no one size fits all, so there will continue to be lots of experimentation.
Katie Thomas, Lead, Kearney Consumer Institute
Fully agree with the above – namely, when you talk to consumers directly and don’t just quantitatively survey them, many are less concerned than the numbers indicate. Sure, they are prioritizing and making some degree of tradeoffs, but many haven’t pulled back completely. It’s a great opportunity for discounters to figure out even more about quality thresholds, for consumers across incomes.
Only call-out is that we are less bullish on resale. Not because of the advantages, where we agree, but because well, things have to be purchased (and often used) first before they can become resale. So we anticipate a potential inventory problem. Are brands going to be emailing consumers asking them to bring in their gently used goods, a la car dealerships for a leased car?
Neil Saunders, Managing Director, GlobalData
Things are not as gloomy as is made out. However 2023 will be a challenging year as many consumers remain constrained and will not be able to employ credit or savings to get them through to the same extent they have done this year. Retailers will feel a lot of bottom line pressure as their own costs rise but they feel unable to pass those increases through to consumers who are more reluctant to spend. That, in turn, could lead to some job cuts (we are already seeing this) which will soften the labor market.
On the retail front, smaller stores will be a trend for some but not for all. Target is looking to enlarge stores as are some other retailers. I don’t particularly agree that showroom stores will become predominant as this ignores the demand for immediacy from customers visiting physical locations – which is a massive driver of foot traffic to shops.
Dave Wendland, Vice President, Strategic Relations Hamacher Resource Group
Great questions, Lee. The three areas you mention (showroom locations, smaller stores, and resale) are absolutely poised for steep growth. The economy is one factor that will drive their continued relevance. Another factor is “familiarity” among shoppers. The economic pressures, pandemic, and shifting consumer behavior introduced these formats – perhaps for the first time – to countless consumers. And, quite honestly, they liked it.
From an operational standpoint, getting the experience right in the brick-and-mortar setting, integrating digital and social commerce into the mix, and creating efficiencies to use limited staff wisely will be the tipping point to either accelerate these retailers or cause them irrevocable setbacks.
DeAnn Campbell, Chief Strategy Officer, Hoobil8
While optimism remains high, retailers will focus on strategies that offer short term wins or profits while they wait and see what happens with global recession, supply chains, political unrest, new climate regulations and pandemics. In short, retailers will be making cautious moves rather than playing the longer game for 2023.
Gary Sankary, Retail Industry Strategy, Esri
The trends are definitely positive at the moment. Inflation seems to be easing, supply chains are working through the kinks of the pandemic and there is pent-up demand for store experiences. I believe we’re going to see more hybrid shopping experiences, like the new showroom stores. I also expect to see more investment in fulfillment technology and a more concerted effort to shorten the supply chain for high-turnover, high-profile items. Retailers learned during the pandemic the importance of reliable inventory, and I believe they’re working to create a more sustainable supply chain. I also expect to see more automation in stores and fulfillment centers. The labor shortage doesn’t seem to be going away any time soon.
David Spear, Senior Partner, Industry Consulting, Retail, CPG and Hospitality, Teradata
I’ll be the contrarian to earlier comments and predict a tough slog for 2023, due primarily to great uncertainty around geo-politics, energy, inflation, and continued layoffs. You can bet on the following: private labels/in-store brands will BOOM and supply chains will begin to normalize to pre-COVID-19 levels. However the one caveat to supply chains is if China moves on Taiwan. If that happens, supply chains get wonky FAST.
Karen Burdette, Director, Marketing + Demand
Generally speaking, I agree the continuation of inflation will continue to crush the middle of the market. Personally, I’m really excited about the resale/recycle segment exploding. I helped launch an entrepreneur who buys activewear that’s unsold or returned and headed to the landfills. She killed it in November. She’s a lover of nature and spends a lot of time hiking and camping so her passion to rescue new or gently used activewear from the landfills shows online and in her social media. I saw another business doing this on the West Coast for furniture. It’s brilliant and it’s catching on!
Gene Detroyer, Professor, International Business, Guizhou University of Finance & Economics and University of Sanya, China.
Once upon a time, there were catalogs. Big catalogs! Sears, Montgomery Ward, J.C. Penney. Most of those retailers had small stores, local stores where you could pick up your merchandise. Today the catalog is on the internet. (Why didn’t Sears morph into Amazon? But that is another story.)
Where am I going with this? Smaller stores and showrooms will become more prominent. Online, if done properly, can relieve retailers of one of the biggest problems they constantly face — inventory management. And while we see online as just a part of retail, it will grow, and the demographics change to become the most retail sales by 2030. For 2023, the trending toward showrooms and smaller stores will accelerate.
Dave Wendland, Vice President, Strategic Relations Hamacher Resource Group
Great comments, Gene. I was just speaking with our director of marketing about the “showroom” phenomenon and I was applauding Tesla’s efforts and disruption in the auto industry. They do not have acres of asphalt filled with inventory — they have a showroom and made-to-order automobiles. What other industry is poised to adapt this type of disruption? (I’d suggest electronics, household appliances, and perhaps even building materials.)
Gene Detroyer, Professor, International Business, Guizhou University of Finance & Economics and University of Sanya, China.
I think your predictions are on target.
Dave Wendland, Vice President, Strategic Relations Hamacher Resource Group
Thanks, Gene. Certainly, “the future ain’t what it used to be.” (Thanks to Yogi Berra for continuing to make sense of the new normal.)
Scott Norris, Sales Development Manager
Everything old is new again. In the early 1980s we had small-box office supply with same-day delivery of core items tailored to local needs, and national catalogs if you had a little time to get your order. The venture capital big-box wave trashed the supply chains, caused massive vendor consolidation and offshoring, and put tens of thousands out of work. Amazon took the place of the catalogs. And now Staples and Office Depot are singing the praises of small stores while they look for one final corporate cash-out. We’d have been farther ahead if no one had done anything from about 1985 onward…
Jeff Sward, Founding Partner, Merchandising Metrics
The shift to e-commerce, even if it has decelerated, means that a lot of stores would be more efficient with smaller footprints. Less space with less, more focused inventory. Localized inventory — the more localized the better. The data to accomplish this is just sitting there. It’s supply chain and distribution logistics that need to be upgraded.
David Slavick, Co-Founder & Partner, Ascendant Loyalty
Sustainability, fighting inflation, higher prices, buying essentials and conscious savings in anticipation of job change or loss are all key. There is still real estate out there to support smaller formats at a more favorable cost per square foot in relation to sales performance. Retailers are investing in technology, analytics and improved CRM/Loyalty capabilities. Yes, 2023 is a “new year,” but with the pandemic in our rear view mirror business performance, profit and customer nurturing/retention will be favorable vs. PY.
Dave Bruno, Director, Retail Market Insights, Aptos
I think Lee’s forecast regarding the economy is on point, and I also agree that we will see retailers look for creative ways to offer shoppers options. I suspect we will see more “gently used” departments (or even dedicated stores), virtual showrooms and creative store-within-a-store collaborations. I look forward to seeing how creative retailers will turn these challenges into opportunities.
Patricia Vekich Waldron, Contributing Editor, RetailWire; Founder and CEO, Vision First
The middle-ground has always been the least effective place for retailers.
Craig Sundstrom, CFO, Weisner Steel
Yes to all three — there’s nothing mutually exclusive here, of course — but if by “biggest splash” we mean stories we’ll read here on RW, it’s the former (showroom stores): unlike the latter two, which are really trends, store openings are events … highly publicized and tangible.
Ricardo Belmar, Retail Transformation Thought Leader, Advisor, & Strategist
There are two problems with most consumer surveys that many people rely on for predictions. One, they don’t do a good job of reflecting short-term vs long-term consumer thinking. For example, short-term, consumers are not only shopping they’re buying! So sure, ask a consumer if inflation is hurting them, they’ll say yes, but it’s not stopping them from buying what they want in many product categories. Retailers like to group consumers into easy-to-understand buckets — value shoppers vs luxury buyers for example. But what about the consumer that’s willing to trade down to private label at the grocery store to save money so they can buy that designer handbag as a gift for the holidays? Is that a value or luxury shopper? Short-term or long-term thinking? That same consumer may tell you next year they refuse to buy luxury items. The second problem is that such surveys don’t consider how different consumers act in one product category or segment than another. If you’re trying to decide if you should open more showroom stores, or decide… Read more »
ZoharG, Co-founder, CEO, Fast Simon
Retail would reverse its trend vs. eBusiness in the past 3 years of the pandemic, for the simple reason that consumers want to go out again. Since eBusiness advantages are here to stay, many experiential retail models and same-day shipping/warehousing retail models will thrive. While there has been a correction in the capital market, the impact on the real economy is lagging, and shoppers’ sentiment is not gloomy.
Kenneth Leung, Retail and Customer Experience Expert
People are slowly coming back to physical stores because they are buying items that require tactile feedback like clothing and accessories. Also, environmental concerns are leading some consumers who are delivery super shoppers to rethink the packaging. There will be a lot of experimentation, but given the interest rate increase driving up cost of capital, I think the experiments will be more conservative and expect shorter payback time.
Brian Cluster, Director of Industry Strategy – CPG & Retail, Stibo Systems
Not on the list is new formats that tie to returned goods and/or distressed products. For example, in the last 5 years, 5 below has grown 500 stores. Quick sell bin retail seems to be catching on locally in So. Cal. An example store such as Deal Busters in California which has a descending price model through the week. Prices on everything are $7 on Friday and gradually decline by a dollar until everything is $1 on Wednesday and they restock on Thursday. The high rate of returns provides opportunities for alternative value retail. People are attracted to the price despite the lack of aesthetics.
Patrick Jacobs, Co-Founder, Immerss
All retailers will continue to tighten their belts across the board. Resale and smaller locations are a strong strategy for efficiency. Offering a product assortment that provides more bang for your buck is what consumers want now. Resale and off-market models will continue to move past just trending, and will become a bigger identity for all demographics.
Anil Patel, Founder & CEO, HotWax Commerce
In my opinion, retail in 2023 will touch down new heights. This year’s sales figures clearly indicate that we have made a recovery and the economy is growing stronger. Additionally, I believe, more and more retailers will switch to smaller store concepts in the coming years. The resale industry will also continue to expand since it’s fun to shop and fosters a treasure hunt-like atmosphere for customers.
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