European retail trends: How to replace the missing workers
Retail leaders are prioritizing technology and upskilling to alleviate labor shortages
Adgild Hop
Egbert Wege
Dr. Bryn Walton
Stamatoula Graeber
Richard Horton
The workforce challenge
By the end of the 2020s, working-age populations are projected to decrease by 8 million and 12 million in the eurozone and the European Union, respectively.1 In the decades that follow, this decline is set to continue at roughly the same pace in the European Union, as European populations continue to age rapidly and retire. Long-term sickness is also a serious factor.
In the United Kingdom, more people are leaving the workforce owing to ill health than they have since the 1990s.2 Meanwhile, in Germany, workers are taking four more days sick leave per year since the pandemic than before it.3
This is creating extreme staff shortages in many industries – especially in the retail sector. But Deloitte’s Global Retail Outlook 2024 finds that some leading European retailers are finding ways to compensate. Efforts to invest in technology and training will enable their businesses to thrive even as labor pools shrink. These pioneering efforts can have valuable lessons for other retailers as well.
Workforce decline: Part of a bigger picture
A once-in-a-century economic, social, and technological transition is unfolding, touching all aspects of consumer industry – from market value to business models. Business leaders are rethinking how they employ labor and prioritize operational decisions. More broadly, automation and technology are affecting the types of jobs available, requirements for entry-level workers and the nature of in-demand skills. Changing demographics are prompting employers to recruit new groups of workers to cope with labor shortages, such as older workers, women, and foreign-born workers. For many retailers, greater uncertainty in the macro environment has created a greater need for flexibility in work practices, such as considering remote working, flexible schedules, and changing training needs.
Through a series of conversations over 18 months with more than 800 consumer industry executives, analysts, academics, and luminaries, along with input captured through our ConsumerSignals survey, Deloitte has identified six forces that will play a fundamental role in shaping the future of the consumer industry over the next decade:
- the changing demands of the consumer
- radical industrial upheaval, increasing in pace and intensity
- extreme climate change, pressurizing the industry to transform itself
- economic, policymaking and power shifts that will demand a more flexible approach from management
- an evolving society and culture, with consumers breaking free of traditional anchors
- exponential technological advances, including in infotech, biotech and material sciences.
In combination, these trends will create a new competitive landscape. Fresh opportunities will emerge, and retailers will need to innovate to differentiate themselves and get ahead of their competitors.
At the same time, the European retail workforce will be transformed. Demographic change will make it harder to obtain sufficient labor. But rapid technological progress offers an opportunity to mitigate the resulting challenges. Pioneering retailers are investing more in automation and other labor-saving and labor-augmenting capabilities. Some are exploring solutions to support new, agile operating models, in a switch from human-centric to data- and algorithm-focused capabilities.
Others are looking to expand their workforces by pursuing more flexible employment models, company-led higher or technical education programs, decentralized workspaces, workforce diversity, or other options. Another way forward taken by some, as products and services continue to be commoditized, is to innovate to find growth and profits – such as via low-price options, predictive replenishment, delivery alternatives, or peer-to-peer platforms where consumers interact directly with each other rather than through a retailer.
Proactivity sets the leaders apart
Deloitte’s Global Retail Outlook 20244 captured responses from 100 executives at Europe’s largest retailers on a variety of topics. We analyzed the resulting data to identify “leader” companies by scoring them based on their survey responses in four key areas:
- performance over the past three years, in terms of key financial metrics
- confidence in the organization’s ability to maintain or improve profit margins in turbulent times
- expectations for the company’s year-on-year revenue growth in 2024
- expectations for the company’s year-on-year growth in operating profit margin in 2024.
We used their aggregate scores to split the sample into three groups, classifying as “leaders” those organizations that scored in the top third. By analyzing that group’s survey responses, we learned what the high-performing third is doing to address the shrinking workforce.
Our key finding is that leading companies are more prepared to invest in automation and upskilling their workforce than the two-thirds of respondents scoring below them. That proactive initiative is at least partly driven by the belief that employee shortages will adversely affect the customer experience: Sixty-four percent of European retailers agreed, or strongly agreed, with that statement.
Leaders can add to the workforce and spur economic growth
In the face of employee departures, an obvious remedial step is to hire skilled new workers, but the majority (62%) of survey respondents expect competition for qualified and skilled talent to intensify. This is particularly pertinent for those retailers identified by our analysis as leaders: Eighty-three percent of this group believe or strongly believe this to be the case, compared with only 51% of respondents outside this category.
Investments will be needed to provide incentives, such as flexible working, child care support, further training, or reskilling opportunities, and benefits such as private medical insurance, for more people to join the labor market and remain in it and to develop workers’ skills. Adding workers to the labor force would also spur economic growth. Deloitte Germany’s research has shown that such initiatives could expand Germany’s economy by 0.5% to 1.1% annually. By 2030, about 2.5 million more workers could bolster the labor force if Germany were to concentrate on recruiting more older workers, women, and foreign-born workers.5
Upskilling the workforce of the future
Deloitte’s Global Retail Outlook 2024 indicates that 80% of leaders are making major or moderate financial investments this year to hire, retain and ready their workforce for the future (figure 1). Major investment in making their workforce future-ready is being carried out by 20% of leaders – and by only 3% of other retailers. Major investment of this kind might include training, engagement, and/or diversity, equity, and inclusion initiatives. For companies pursuing exponential technology solutions, training becomes imperative if workers’ skills are to align with new tech capabilities.
Technology offers another way forward
Technology offers another complementary means of alleviating labor shortage. Many organizations expect to use technology solutions such as digital transformation and automation to overcome the workforce shortages they face.
Deloitte research into measuring digital transformation shows the investments retailers plan to make and identifies key outputs that retail companies measure as they pursue technological innovation (figure 2). Workforce-related factors most frequently used to assess the success of digital transformation are higher employee productivity (73% of respondents), employee engagement or satisfaction (62%), and employee utilization rate (58%). Employee retention was also seen as a valuable motive for digital transformation (52%).
Which of the technological capabilities capturing retailers’ attention could alleviate workforce pressure? Of the leaders identified in Deloitte’s Global Retail Outlook 2024, 73% are undertaking moderate to major investments in digital transformation – deploying new technologies at scale to improve operational efficiency and the customer experience. Nearly three-quarters of leading European retailers strongly or very strongly believe that they are skilled at deploying new technologies at scale, as well as quick to adopt innovative technology.
Through Deloitte’s research into measuring digital transformation value, data analytics was identified as by far the most significant technology investment for retailers (figure 3). Retailers collect lots of data – on sales, point of sale, customer loyalty, products, merchandizing, supply chain, and operational data, to name only some. All of these tell a story that can be used to aid decision-making. Data analytics can help grow sales through more effective targeting and marketing, with all the customer data being put to use, and improve margins and performance through more effective promotional activity. It can also drive back-office efficiencies by optimizing stock, inventory, and logistics. Other significant investments are mobile-technology capabilities, cloud data centers, and identity and access management.
Leaders expect to adopt drones and AI
Deloitte’s Global Retail Outlook examined respondents’ expectations for the sector over the next five years. Over half of European leaders regard it as likely6 that delivery via autonomous vehicles and drones will become very common – only 9% of other retailers believe this will be the case. Likewise, when asked about the likelihood of AI largely automating activities such as demand forecasting, assortment optimization, personalization, and fraud detection, it was the leader group that was most optimistic, with 34% regarding it as likely, compared with only 12% of other respondents seeing it as likely.
According to our research into generative AI, European retailers believe they are under slightly less external pressure to adopt new technology, compared to respondents from other industries and regions.7 Nevertheless in 2024, almost half (46%) of Deloitte’s Global Retail Outlook leader group said they will use gen AI to improve workforce management, hiring and training. Twenty-nine percent of leaders said they will prioritize technology applications, such as customer-service chatbots, to circumvent staff shortages. In addition, other areas of gen AI usage in retail can be observed in things like content creation, such as highly repetitive tasks in marketing, improving time efficiency, accuracy, and consistency, and freeing up creative resources for more complex tasks.
Audacity needed in a once in a generation transition
The challenges a shrinking workforce poses for the European retail sector are big, but they also offer opportunities for growth and innovation.
Leading retailers are acting proactively and prioritizing technological advances and upskilling of their workforce. They understand the importance of investing in automation and gen AI capabilities to mitigate the challenges caused by a shrinking workforce. Additionally, they are exploring flexible employment models, diversity initiatives and innovative solutions to drive growth and profits.
The six trends identified by Deloitte constitute a once-in-a-generation upheaval for the retail industry. A new competitive landscape is being shaped, peopled by a new, upskilled workforce. By embracing digital transformation and deploying new technologies at scale, retailers can improve operational efficiency and the customer experience, and secure a prosperous future for themselves.
