Tony D'Onofrio
Retail
It is beginning to look a lot like Christmas, everywhere you go. With decorations now appearing in stores as early as August, reminders are everywhere on the continued importance of each holiday shopping season.
Some statistics on the importance of retail, the holiday season,and the impact on the overall USA economy:
Roughly 70% of U.S. gross domestic product (GDP) is generated by consumer spending. Holiday sales in the months of November and December have averaged 19% of total annual retail sales over the last five years. In 2023, USA retailers hired between 345,000 to 450,000 holiday seasonal workers. 75% of retail small businesses rely heavily on holiday sales to meet their annual revenue goals.It is time to summarize multiple of my favorite retail holiday forecasts For 2024, most of these project lower historical retail sales growth, even as the September's job report continued to deliver positive economic surprises.
Global Consumers Are Feeling the Pinch
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In the latest USA National Retail Federation Security Survey published in September 2023, retail shrink increased from 1.6% of sales from 1.4% in the previous year. This equates to $112.1 billion in losses, up from $93.9 in the previous year. The top 3 retailer priorities in the new NRF survey versus the previous year were organized retail crime (78.1%), violence during a criminal act (72.3%), and homelessness concerns (72.3%).
What's changed since the 2023 NRF security survey was published? How does theft impact inventory distortion? What are the latest shoplifting trends? How do consumers respond to retail theft? Why is retail crime at a crisis point? How does USA compare to other countries with this problem? How do we solve the problem of retail shrink?
The $1.7 Trillion Dollar Global Retail Problem
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Digital retail transformation continues to be on my mind. This follows increased engagement with retailers on multiple continents and observing how they are embracing technology to create immersive experiences that drive more profitable operational efficiencies. From their lessons, the questions that I continue to contemplate include:
Will the future of retail be phygital or omnichannel? How will current trends from next generation shoppers such as Gen Z change retail in the next 10 years? What emerging technologies must make progress to deliver a more profitable future of retail?The Retail Boss nicely summarized the key differences between phygital and omnichannel retail strategies. "Phygital and omnichannel strategies both aim to enhance customer experiences but differ in their approaches. Phygital focuses on merging physical and digital worlds to create immersive, personalized experiences, often leveraging technologies like QR codes and augmented reality. On the other hand, omnichannel integrates various communication channels to provide a seamless and consistent brand experience across all touchpoints, such as physical stores, websites, and mobile apps. While phygital emphasizes the fusion of online and offline interactions, omnichannel prioritizes a unified customer journey across multiple platforms."
As Morningstar reported, "Generation Z, the first truly digital-native cohort, is rewriting the rules of engagement in the retail sector with their preferences and behaviors. Born into a world where the internet, smartphones, and social media are ubiquitous, zoomers' influence is shifting the retail paradigm from predominantly in-store interactions to a complex, integrated model that blends online and offline experiences seamlessly. Their comfort with technology and demand for instant, on-demand access to products and services are driving retailers to reimagine how they connect with consumers."
Technology will continue to disrupt retail business models. The industry's future requires increased digital strategies to turn consumers into brand ambassadors. Concurrently, the entire retail ecosystem and especially the physical store, must increase its digital stickiness through tech empowered store associates as equal brand ambassadors.
Future Consumers Technology Preferences
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A favorite retail industry report which I hope Chain Store Age continues post their acquisition of RIS News was the annual Store Experience Study. The research highlighted the yearly technology priorities for retailers and its summary continues to be a mainstay as one of the charts in my 'Disruptive Future of Retail' keynote presentation.
According to the latest Store Experience Study, the top five technology priorities for retailers in 2024 are personalizing customer experiences, upgrading CRM / loyalty programs, empowering store associates, inventory visibility, and refreshing the point-of-sale infrastructure.
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“(Self-Checkout) It’s facilitating errors, and in some cases, the steal.” – Santiago Gallino, Associate Professor at the Wharton School
According to the latest NRF Security Survey, retail shrink represents $112.1 billion in losses, up nearly 20% from the previous year. Similar high shrink growth rates can be seen in other countries such as the UK where in the latest British Retail Consortium research, customer theft, doubled to just shy of £2 billion ($2.5 billion).
As I predicted many years ago, the problem of retail shrink is on a collision course with frictionless commerce consumer trends. This growing challenge actually bring new positive opportunities for to both retail and the loss prevention function.
The shrink challenging counter revolution taking place in the retail industry, led by younger generations, is frictionless commerce. “Over 50% of consumers will switch to a merchant with less friction in the shopping experience. And, 41% of all consumers will pay more for simple, fast and efficient shopping experiences.”
Specifically to self-checkout, the 2024 Digital Commerce Index found that 43% of consumers favor self-checkout when shopping in a grocery store. By age range, that preference is even more interesting with 55% of 18-29 years old favoring it, 30-44 at 51%, 45-60 at 40%, and those aged 60+ at only 26%.
The genie is out of the bottle in terms of increased frictionless commerce in all retail sectors. To understand its impact in the apparel industry, read one of my previous article titled “Let’s Get Phygital and Get the Future of Retail Party On.” This article explores deeper the challenges at retail shrink at self-checkout and the accelerated adoption trends of frictionless commerce.
Stealing at Your Local Self-Checkout
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Once again, the ritual that is the January National Retail Federation Big Show is upon us. Over 40,000 people, 6200+ brands, 1000+ exhibitors, from 100+ countries participated in the NRF 2024 edition. My retail innovation leadership activities stretched out over five days logging over 75,000 steps or to be more exact 32.62 walking miles.
The greatest pleasure at this event is reconnecting with retail and technology leaders from around the world in one single location. This year was a reminder that we are well past the pandemic. Refreshingly, the hearty handshakes and hugs were back with both friends and business colleagues.
Personally, NRF 2024 was even more special as I returned as President of Sensormatic, the leading retail portfolio business of Johnson Controls. My agenda was super packed with retailers, press, and analyst’s meetings. Being a true retail technology industry ‘geek’, I did squeeze in my traditional trend spotting walk.
This article summarizes some of my favorite events and themes of NRF 2024. It highlights both the ‘hits’ that made NRF 2024 memorable and the one ‘miss’ that could have improved it.
Best Way to Start Each NRF: Retail ROI Super Saturday
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Are we becoming more physical stores or online digital shopper consumers? Prior to the pandemic, a topic that was popular in general media was the “retail apocalypse”. This Armageddon industry ending realization was being driven by rising retail bankruptcies and store closures.
The opposite force was the rise of digital commerce. Back in the year 2000, less than 1% of USA retail sales came from ecommerce. Fast forward to 2018 and it reached nearly 10% and by 2027 it is projected to reach 20.4% of total retail sales.
The digital revolution of the retail industry is here to stay. For the first half of 2023, according to Morning Consult, these are the reasons for shopping online versus instore.
Above chart is important as it points to the drivers of the digital versus physical instore model. This is a general view across the shopping population. As I pointed out in a previous article, leading retailers have realized the digital and physical are blending into phygital strategies. It’s no longer one versus the other, but the growing intentional strategy to combine the business models to drive higher consumer engagement across channels.
Just as interesting, if not more important, are technology adoption trends for the younger consumers and the innovation they would to see introduced into shopping journeys. As a new research study from Tata Consultancy Services pointed out, “consumers of all ages want new technologies, based on their preferences, to enhance their shopping experiences, instore and online, today and in the future.”
Privacy is Less of Concern for Younger Generations
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Over the past two weeks, I had the pleasure of visiting several futurist retail stores in Europe. What became clear from those visits is that the linkage between physical stores and online ecommerce is growing stronger and much more innovative. Progressive retailers are moving on from omnichannel to phygital.
Differentiating these two concepts from a customer point-of-view:
The omnichannel consumer is one who shops using both online and offline channels. Phygital is the deliberate focused operational strategy to combine digital and physical experiences across channels.As visualized by Circana, in a phygital world, there are substantial interconnections between digital and physical retail:
Phygital is all about the data created at the intersection of physical stores and ecommerce. As a strategy, it heavily embraces technology to deliver differentiated and memorable consumer experiences. It is the natural evolution of the growing digitization trends around us, heavily embracing smartphones as windows into the shopping journey. This article looks deeper at these trends and provides examples from my European retail store tours.
The Phygital Consumer Wish List
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It is only September and thoughts of a hopefully happy retail holiday season are already swirling through my mind. Looking back to last year, for the November- December season, retail sales in USA grew 5.3%, to $926.3 billion, falling short of the National Retail Federation’s (NRF) forecast amid continuing inflation and high interest rates. While holiday growth was less than expected, for the year USA retail sales grew 7% to $4.9 trillion, meeting NRF’s forecast of 6% to 8% growth for the year.”
For 2023, NRF has tempered USA retail growth prospects to between 4% to 6%, equaling $5.13 trillion to $5.23 trillion. The good news for the USA economy is that according to JP Morgan, it grew 2% to 2.4% in the first six months this year and is expected to continue to grow at 2% in the second half of 2023.
The elephant in the room remains inflation which is currently going in the right direction. “Core goods inflation has dropped from 12% to 0.8% over the past year, while core services inflation has only slowed to 6.1% in July from its peak of 7.3% in February. JP Morgan expects gradual improvement with inflation over the coming months, though a return to the Fed’s USA targeted 2% could take until late 2024. For the first half of 2024, USA GDP growth is projected at only 0.4%.
An additional headwind this holiday season is high credit card debt. In the United States, consumers are now carrying $1 trillion in credit card debt with the average balance at about $6,000 and more than half of credit card holders worrying about paying their debts. While higher debt, depleted pandemic savings, and inflation are introducing risk of a recession, at a global level, retail will remain resilient.
With all this mixed news, what can we expect for the 2023 holiday season? What are the key trends that will drive shopping behavior in this important shopping time of the year?
Will We Shop Till We Drop This Holiday Season?
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Having just finished my first book on personal branding which will be published later this year starting in the UK, you can guess that I am a big fan on the potential of the concept of branding. When it is well-executed, branding commands higher margins, creates loyal consumers, and creates that special buzz many like to follow.
The advent of smartphones and social media has increased the importance of branding. With the smartphone, we can all provide instant feedback to a brand about our experiences. Social media creates opportunities to generate viral content which increases the value of the brand.
Branding at all levels, including you as an individual, will increase in importance as digitization continues to become ubiquitous. It is for reason, that every year I look forward to the latest Kantar BrandZ most valuable global brands reports.
For the world’s top 100 most valuable brands, their value declined a surprising 20% in 2023 in the face of strong macroeconomic headwinds. The total value of the world’s top 100 global brands now stands at $6.9 trillion. As the research summarizes, reinforcing the importance of paying attention to you brand, “over the 17 years in which we have been tracking the world’s strongest brands, the companies behind the top-ranking brands have outperformed stock market benchmarks.”
This article summarizes the top 10 most valuable global brands in the key categories that I am most passionate about – Retail, Apparel, and Luxury. The actual research is very comprehensive and covers all industries and makes for a good read on differentiation strategies for growth which are critical to brands. All quotes and data in this article are from the Kantar BrandZ report.
The Top 10 Most Valuable Global Brands and New Entrants
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It is a Small World
"To succeed in life, you need three things: a wishbone, a backbone and a funnybone." – Reba McEntire
Continuing our global journey to learn something new, our next stop is the Trevi Fountain in Rome. The name "Trevi" comes from the Italian words tre, meaning "three", and vie, meaning "roads". The fountain is located where three roads meet.
A fountain has been located at the Trevi Fountain site for over 2,000 years. The current fountain was designed by Nicola Salvi and built between 1732 and 1762. It's the largest Baroque fountain in Rome.
The Trevi Fountain's water comes from the Acqua Virgo aqueduct, the only functioning aqueduct from ancient Rome. Local lore says that throwing a coin into the fountain will ensure you return to Rome. Other lore says that throwing two coins will lead to love, and throwing three coins will lead to marriage.
Wishes aside, since 2006, a Roman Catholic charity called Caritas has collected the roughly €3,000 a day thrown into the fountain and used it to provide food and social programs worldwide.
Life is one sweet ride. Time flies way too fast. Take a moment. Sit at your favorite place. Imagine the history before you. Live each moment as it was your last. One day, it will be.
Categories
Brilliant Research
Unlocking Shopper Reactions to Secured Products
60% of shoppers report seeing locked-up merchandise on a regular basis. More than a quarter of shoppers say a retailer loses their purchase when items are locked up. 62% of shoppers say they typically wait for assistance when they encounter locked up merchandise, and 9% say they order the item online from that same retailer. - From Numerator.com Read more
Smart Infographic
Retail Media: An Evolving Growth Opportunity that Won't Wait
Retail media is still surging. Ad spending with US retailers is growing 9X faster than traditional point-of-sale shopper marketing. - From Bain & Company
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