With the ongoing inflation and the cost of living crisis, the first half of 2023 is expected to be another tough few months for retailers. However, the second half should see a growth of 3.6% to 4.7% compared with the 1% to 2.3% in the first half as inflation starts to slow and consumer confidence improves.
So, what should retailers keep their eyes on to prepare themselves?
Consumers are trying their best to survive and thrive in the midst of the cost of living crisis and financial instability. According to the ONS, 89% of adults in the UK said their cost of living has increased; and 57% said they’re spending less on essentials. 2023 will the year in which frugality is normalised, even made cool. 40.7% consumers are actively consuming less, which is an 8.5% increase on the previous year.
GlobalData’s research shows that 38% of shoppers are already switching to cheaper essential products. In an effort to reduce costs, 56% of consumers are willing to forgo brands they’re loyal to for a good deal. In fact, Google found that 51% of fashion shoppers tried new brands in 2022, which is up from 24% in 2020 and 34% in 2021. This trend is expected to continue throughout 2023.
It is imperative that retailers reassess their value proposition and provide good deals to retain existing customers and win new ones. Morrisons and Tesco have prepared themselves by making 130 price cuts and price lock initiative on thousands of products respectively.
Living for the Moment:
Consumers have less money to spend but more desire than ever to break free from the monotonous life Covid-19 had forced upon them. The continuous need for penny pinching and saving for the future has created a pent-up desire for excitement and experience. In 2023, consumers will be living in the moment by continuing to shop, travel, eat, and fulfil the desire for instant gratification. McKinsey’s State of Fashion report forecasts that global luxury fashion sales will grow up to 10% in 2023 as there is expected to be a 6.2% increase in people shopping daily and weekly.
Retailers must attract these consumers by offering experiences in store and online; since consumers want to indulge, the focus should be on indulgent products and experiences, helping consumers escape. Doing this correctly will earn retailers loyal customers who are willing to pay premium prices.
In-store is back:
The pent-up demand for experiences has forced shopper back into stores. Shopping in store is now an experience so stores should be ready to provide an easy and fun time.
Sustainability on a Budget:
Sustainability has been a demand of consumers for many years now and they’ve previously been willing to pay more for it. However, in 2023, consumers expect sustainable products and brands to be the norm. It is no longer a badge of honour; it is simply expected. Any brand that appears wasteful or harmful to the environment will lose customers to brands that can better align themselves to their customers’ values. Gen X is the group leading this trend. In fact, 23.9% Gen X consumers have said they will buy less fast fashion.
With less money in their pockets and the expectation of sustainability, consumers are no longer willing to pay the green price. This is why The Body Shop’s refill station is attractive to consumers – it offers more product for the same price as packaged goods so consumers believe this to be a good deal. Offering bundles and discounts on sustainable products, recycling old items in return for store vouchers, pre-loved products are other ways to attract consumers.
Larger Social Impact:
Consumers expect more than sustainability from retailers in 2023. 83% of consumer want brands to represent a cause and the desire for brands to take a stand on political and social issues, especially poverty and inequality, will only increase in the future.
The growth of second-hand stores, rental services, charity shops are proof that retailers need to get on board and make a larger social impact. In doing so, retailers have the opportunity to align their values with their customers and attracting more long-term loyal customers.
The Metaverse and Technology:
More than a quarter of UK households are expected to own a virtual reality headset and the age group of 40 and under are the biggest users. With this level of VR adoption, the metaverse will provide an excellent advertising opportunity for brands to reach a larger audience. Retail strategy lead at Accenture, Kelly Askew, advises retailers to experiment by testing concepts internally and externally to understand how best to blend virtual and real-world experiences.
The luxury industry is paving the way into the metaverse with Burberry, Gucci, and Balenciaga all launching initiatives. This is already trickling down to mid-market retailers as H&M launched Looptopia, a metaverse extension of its recycling programme, inside gaming platform Roblox. Players are able to explore a futuristic city filled with H&M stores and play interactive games.
Social commerce, video games, and in-store are where consumers are spending most of their time. Therefore, in-store technology offering immersive experience is also important. Consumers can be delighted by self-service checkouts, AI app-based recommendations, smart mirrors and more. These technologies will improve shopping experience and make businesses stand out amongst competitors.
In summary, retailers should adjust their deals, marketing, and brand experience to suit the cash strapped shoppers of 2023. Engaging with consumers where they spend most of their time will make the brand seen, offering a great experience and aligning values will get consumers through the door, and providing good deals will lead to higher conversions. Doing all of this correctly will earn retailers loyalty during this tough year.