2023 retail industry outlook has been saved
Perspectives
2023 retail industry outlook
Embrace the changing consumer to bolster growth in inflationary times
Amid market volatility, labor pressures, and supply chain constraints, how can retailers sustain the resiliency of the last few years to better navigate the current headwinds? Our 2023 industry outlook explores retail trends to help your company elevate its business strategy beyond traditional cost-cutting. Learn how your organization can help drive future profitability by ensuring the consumer experience is at the heart of investments.
Resiliency in bulk quantity: a retail industry overview
Change can be good, but constant change can be daunting. Retailers today are feeling the hangover of such volatility occurring in the most condensed time frame of any recent business cycle. As we head into the new year, only one-third of retail executives are very confident about maintaining or improving profit margins in what are expected to be turbulent times.1 Almost all retail executives expect inflation to pressure their profit margins. They’re also predicting hard times for consumers, with nearly all anticipating diminished consumption in 2023, resulting from rising financial concerns.
But the retail outlook is not all gloom and doom; retailers have learned much about resiliency in the past few years. Massive demand fluctuations during the pandemic forced retailers to rethink archaic systems in favor of more pliable operations. They learned that rapidly evolving consumer preferences require more effective analytics and tools to build loyalty.
To check the pulse of retail executives, we asked 50 leaders about their expectations regarding challenges and opportunities in the upcoming year. We wanted to better understand what traits separate leaders from the rest of the pack and to analyze planned strategies and investments for 2023. The results provide a unique outlook on how today's market, future expectations, and changing consumer needs inform strategies for the year ahead—and beyond.
To learn more about the emerging retail industry trends, explore them below. For an even deeper dive, download the full report.
2023 retail industry outlook
Three retail industry trends and priorities
The confluence of obstacles retailers face can make the next steps daunting. As such, we believe there are three key areas that retailers can—and should—address now to create efficiencies while addressing the changing consumer: last-mile capabilities, reverse logistics, and social commerce.
Future of Work: Ways of working in uncertain times
Supply chain
Last-mile capabilities
Seven in 10 leaders say they are very confident that they will be able to deliver a seamless experience to consumers across channels, compared with only two of 10 laggards. To do so, retailers should consider creating more profitable last-mile delivery solutions by investing in automated micro-fulfillment centers (MFCs). MFCs can increase storage capacity and throughput rates—filling orders for multiple stores—and create efficiencies by freeing up employees who otherwise would be picking orders. MFCs are particularly attractive given they can expand the range of same-day and next-day services retailers can potentially reach.2
Omnichannel
Reverse logistics
Every return is an opportunity for retailers to save a sale. Retailers should look to take advantage of in-store reverse logistics capabilities. In-person returns satisfy customers' desire for immediate credit while reducing expenses for mailed return delivery. And with the growing popularity of return bars—stores that pack and ship returns for partnering retailers—there is an opportunity to drive additional store traffic and expand the footprint of their client base, an ideal situation during inflationary times. Recent data suggests that retailers participating in return bars save over 20% in processing costs.3
Digital
Social commerce
The cost of acquiring a new customer can be up to six to seven times more than retaining old customers,4 and social commerce can help reinforce existing customer loyalty. Retailers should invest in technologies to provide a seamless purchasing experience within social channels and shoppable media to nudge users toward purchases and create loyalty. Enabling shoppable tags with product information, embedding the brand website into the social media app, and enabling in-app transactions can help reduce friction on the shopping journey.
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Methodology
This survey was commissioned by Deloitte and conducted online by an independent research company from October 21 to 31, 2022. It polled a sample of 50 retail industry executives, of which 70% were from companies with annual revenues of $10 billion or more. The respondents included C-suite and senior executives who were directly responsible or exerted significant influence on major strategic initiatives in their organizations.
Economic outlook for the retail industry
A note from Deloitte US Economists Danny Bachman and Akrur Barua
Three key economic trends will likely influence retail sales:5
- A slowing economy will keep retail sales growth in check.6 In our baseline scenario (55% probability), we forecast GDP growth to slow to 0.9% in 2023 from an estimated 2% in 2022 and 5.9% in 2021.7 A relatively healthy labor market will, however, continue to boost sales. And there is a significant chance that a recession would make things much worse. In the event of a recession (which Deloitte rates at a 35% probability), the economy would contract, and unemployment would rise.
- Inflation has lowered consumers' purchasing power despite gains in nominal income due to the strong labor market. Even though nominal average weekly earnings have increased by 8.3% since December 2020, real earnings have fallen by 5%.8 This will weigh on consumer demand and, hence, retail sales volume.
- Consumer spending9 on services has been picking up steadily as consumers return to bars and restaurants, take vacations, and enjoy sporting events as they did before the pandemic. To some extent, consumers are dipping into their savings to make up for what they missed during 2020-2021. The personal saving rate is now at 3.1%, much lower than pre-pandemic levels. A shift in spending to services will therefore weigh on retail sales at stores selling consumer goods.
End notes
1This survey was commissioned by Deloitte and conducted online by an independent research company from October 21 to October 31, 2022. It polled a sample of 50 retail industry executives, of which 70% were from companies with annual revenues of $10 billion or more. The respondents included C-suite and senior executives who were directly responsible or exerted significant influence on major strategic initiatives in their organizations.
2Walmart Inc., “From ground-breaking to breaking ground: Walmart begins to scale market fulfillment centers,” January 27, 2021.
3Shelley E. Kohan, “Happy Returns locations expand to over 5,000 with Ulta Beauty return bars,” Forbes, March 28, 2022.
4Deloitte, “Holiday retail trends show spending is alive and well,” accessed November 25, 2022.
5Retail sales exclude sales at automobile and parts dealers and gasoline stations but include sales at food services and drinking places.
6All data is from United States government agencies. Unless stated otherwise, all data is sourced through Haver Analytics.
7Daniel Bachman, “United States Economic Forecasts: Q4 2022,” Deloitte Insights, December 2022.
8Bureau of Labor Statistics, “Establishment Survey,” sourced through Haver Analytics, accessed November 2022.
9Consumer spending in this section refers to real spending and not nominal unless mentioned otherwise.
If you’d like to discuss any of the retail trends or insights you’ve read and how your organization can thrive in the coming year, let’s set up a conversation. Get in touch
Nick Handrinos
Vice Chair & US Leader | Retail & Consumer Products
