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Retail in a recession - three things businesses will be doing with data to stay competitive in 2023

Richard Cudd Profile picture for user Richard Cudd February 16, 2023
Summary:
No time to get comfortable - Richard Cudd of Confluent forecasts three ways that retail businesses can weather the changes to come.

Sale and retail statistics and analysis. Shopping cart and financial chart © Vitalii Vodolazskyi - Shutterstock
( © Vitalii Vodolazskyi - Shutterstock)

If we look at the landscape of European retail over the last ten years, there can be no doubt that it has been one of change. Consider the rise in e-commerce, the emergence of disruptor brands like Boohoo and Zalando, Aldi and Ocado, and welcome improvements in supply chain efficiency thanks to D2C and just-in-time business models.

But just as retailers were getting comfortable with a revolving door of developments, then came COVID-19. What has ensued in the two years since has been turbulent, to say the least. And with a recession, rising inflation, job losses, strike action, war and climate change to contend with, this year doesn’t look like it’ll be any different. Apart from possibly being worse.

So what can businesses do to weather the approaching storm?

Thankfully, the learnings of the pandemic have left many businesses battle-hardened – and braced – for the inevitable shift in consumer habits that will be brought on by the tough times ahead. Retailers are in a prime position to use data to react with agility, innovation and, hopefully, success.

Here are three strategies that I predict we’ll be seeing across the industry to enable this.

1. Price sensitivity will be key, with data ensuring it is cost-effective

All of us hoping for a retail rebound in 2023 will be disappointed. While life may have ostensibly returned to normal, the impact of the “permacrisis” of economic and geopolitical uncertainties is dampening consumer confidence. In the run-up to the holiday season, figures showed that shoppers across Europe planned to cut back on spending significantly.

The squeeze on disposable income means that price will be a point of competition for retailers who should look to discounter brands like Aldi and Lidl for lessons in streamlining operations and less-is-more inventory. Cost-conscious consumers will be more mindful of value and quantity over quality, meaning that simply slashing prices to get rid of excess stock won’t work.

Retailers will rely increasingly on real-time 360° supply chain visibility and automation to maximize the efficiency of their inventory and make it reactive. Having a constant stream of deep and wide data to know who is buying what – and when, where and why they are buying it – facilitates the kind of agile decision-making that significantly reduces operational costs. At the same time, the data allows you to offer dynamic and personalized pricing that can be more persuasive for thriftier spenders.

A fully managed data streaming service helps businesses connect systems and applications across brick-and-mortar stores, e-commerce, and warehouses for real-time omnichannel inventory management, optimization and security. One of our customers, Michelin, offers a fascinating case study for this. Using Confluent Cloud, the company was able to scale its real-time inventory system to meet growing global demand while cutting operations costs by 35%.

2. Consumer personalization will still matter and retailers should be careful not to cut back on CX spending

Consumers this year will be thinking more carefully before buying, making them harder to target. I believe that CX will continue to play a role in brand differentiation, though customers may be more willing to sacrifice customer experience for a better price. What’s important is that retailers don’t lose sight of the long-term. Intelligent leaders shouldn’t suddenly switch focus from CX to price because of cost-conscious behaviours. Customers still want a better experience, it’s just that they may not be as willing to pay for it right now.

On the flip side, consumers might find great CX to be reassuring and persuasive, especially if they are mulling over high-value purchases that they want to be sure will bring them a return on their investment.

It’s worth noting that brands’ investment in customer experience has not gone unnoticed among consumers who are increasingly demanding the same accountability elsewhere. If I can receive personalized product recommendations and discounts relevant to me from my electronics store, I expect the same treatment when I’m shopping for groceries. With consumers empowered by clearer benchmarks for customer experience, businesses will have to be proactive about meeting those expectations.

A recent YouGov and iCrossing study in the UK revealed that more than half (58%) of marketing decision-makers identified improving customer experience as a priority for their organizations in 2023, with more than a third (35%) seeing personalization as a priority.

And the importance of access to customer data to upgrade CX is vital. Respondents in the study recognized this, with 40% planning to unlock the power of data this year by investing in improved IT infrastructure and platforms.

I’ll be eager to see if discounter brands like Aldi and Lidl make any steps to improve their CX this year. If they can make strides into an improved level of customer experience, combined with their high-quality but low-priced products, they could really fly.

3. Businesses will boost their loyalty programmes, backed by belief-driven buying

Macroeconomic conditions will see retailers double down on retention over acquisition, a hard-to-win fight in the age of brand disloyalty. Savvier consumers – now extra-pragmatic with their cash – will need more than discounts and cashback to keep them loyal, although these will still matter.

Loyalty programmes will continue to evolve beyond points earned and money returned. To build a connection with customers, brands can tap into their ideals and values, offering rewards that help them give back, such as charity donations, or points for taking part in activities they care about. Climate change will remain a vital issue on which companies can engage with consumers. Capgemini's research on how sustainability fundamentally changes consumer preferences shows that 79% are changing their purchase preferences based on sustainability.

Take Sainsbury’s who have pledged to invest £1 billion to become carbon neutral by 2040, a decade ahead of the UK government’s net-zero target date. Gen Z purchasers in particular are choosing brands that are vocal about their environmental efforts – with the actions to back them up (any greenwashing will be called out immediately).

Loyalty programmes can recognize and reward sustainability among their consumers through collaborations with environmental organizations that offer carbon offsetting by planting trees, for example.

The increased use of loyalty cards means that retailers will have access to a wealth of consumer information that can boost their personalisation efforts. An event-driven data infrastructure with the right governance, underpinned by advanced machine learning capabilities, will be crucial as the variety and variability of data grows exponentially.

Businesses will no longer be able to rely on legacy, siloed data infrastructure when they need to be able to respond in the here and now. That’s why brands like Boden have looked to transform their IT architecture to enable the responsiveness that would allow them to match pace with the demands of their consumers.

Change is now baked into retail

Luckily, it’s not all doom and gloom for 2023. There are signs of hope on the horizon that pressures will ease towards the second half of the year. One thing that is certain is that agility will continue to be a critical factor in how organizations fare amidst the disruption.

As per the case studies mentioned, data streaming can play a central role for retailers in separating those who survive from those who thrive.

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