By Anastasia Lloyd-Wallis
Chief Operating Officer and Head of Consumer Insights, Retail Doctor Group
Changing Consumer and Retailer Sentiment 2023
Consumer and retailer sentiment is a topic that’s close to our hearts. It is, after all, what we know and do best.
In fact, consumer and retailer sentiment means so much to what we do here at the Retail Doctor Group Insights division that we launched a 4-year study to track how the respective behaviour and sentiment is changing for Australian retailers and consumers.
This year we shook things up a little… Working with our Global Partners, Ebeltoft Group, and on behalf of World Retail Congress, we expanded our research to understand the sentiment of retail executives around the world, too.
This research takes a long, hard look at the gap between consumer behaviour and retailer strategy. Our results identify the gaps and why they exist, and – more importantly – the deployment steps retailers need to take to close them.
In this environment of ongoing change, it is important to not only understand where the opportunities are but what your strategy should be to capitalise on them. This is how you execute to win and stay ahead.
Key Retailer Takeaways
The Greatest Challenges for Retailers
Labour shortages are a major challenge for retailers around the world, where more than half of all retail businesses are struggling to find the right people. In Australia, one third of all retailers surveyed have stated that this remains their top challenge overall.
Businesses are not yet well-equipped to deal with these labour shortages, but why are businesses short-staffed to begin with?
Finding qualified employees to fill open positions has become more difficult due to a number of factors, including the COVID-19 pandemic, the rising cost in living, higher customer service expectations, and new working conditions, which are making retail jobs less attractive to some workers.
Many retailers now find themselves short-staffed, leading to long wait times for customers, inconsistent service, and a decline in sales. As retail jobs are now characterised by longer hours, unpredictable schedules, and high levels of customer interaction, conditions can be difficult for some workers to deal with, especially if they have outside commitments like childcare or classes to attend.
This leaves retailers with a difficult choice: either get creative with how they attract and retain quality employees, or figure out how much more they can use their existing resources and budgets to manage their employees’ needs.
Most Important Channels to Invest In
Retailers face a changing landscape, one where consumers demand new experiences and expect retailers to adapt to meet those demands. Two of the top priorities identified for retailers this year are:
- adapting to new consumer behaviours, and
- optimising their store network.
Now, adapting to new consumer behaviours is essential for retailers who want to stay ahead of the curve:
- For 90% of retailers who responded to our survey, the physical store is among the top 3 most important channels for investment towards 2028
- 35% of those respondents expect a sales share of digital channels of >25% by 2028.
This new technical era means consumers are increasingly connected to digital worlds that take care of their needs. And this constant connection demands convenience, personalisation, and sustainability. Retailers must be able to deliver on these expectations with services such as:
- curbside pickup and delivery options to make it easier for consumers to shop
- using data to personalise the shopping experience and recommend products similar to those previously purchased
- optimising the physical store to provide a unique and memorable shopping experiences
The future of retail is digital, but it needs to have a strong physical footprint. Retailers will therefore need to offer a seamless shopping experience that combines the best of both worlds. This omnichannel environment should provide a personalised and engaging shopping experience.
Operational Challenges and Evolving Business Models
The rising costs of operations are a major challenge for retailers. This includes the cost of labour, rent, and transportation.
Another challenge facing retailers is the need to evolve their business models. This includes adapting to the changing shopping habits of consumers, such as the increasing demand for online shopping. Retailers are also facing pressure to become more sustainable, as consumers are becoming more aware of the environmental impact of their purchases.
Despite these challenges, many respondents are still positive about the future of their businesses. They are optimistic about the potential of new technologies, such as artificial intelligence and augmented reality, to improve the customer experience.
Our survey results found that 1 in 7 (14%) retailers believe their business models need to be fundamentally changed in order to be successful in the future. However, the majority of retailers (55%) remain confident that their current business models will be able to withstand future challenges, and project that profits will grow beyond 2023.
In fact, an overwhelming majority of retailers (83%) are positive about the future of their companies.
The future of retail in Australia is constantly evolving, but it is clear that the industry is undergoing a major transformation. Retailers that are able to adapt to the changing landscape will be well-positioned for success in the years to come.
Growth Expectations vs Global Inflation
Retailers are expecting a modest growth in sales in 2023, but this is not enough to offset the rising costs of doing business.
Our survey results indicate that retailers are expecting an average sales growth of 0.6% in 2023. However, global inflation is expected to hit 6% in 2023, therefore the cost of goods sold and other expenses are likely to increase by that much.
This increase creates an important gap between growth in sales and potential higher increases in costs, leading to net-negative growth for many retailers. This is a significant challenge for retailers, who will need to find ways to reduce costs or increase prices in order to maintain profitability.
Solutions may involve negotiating better deals with suppliers, streamlining operations, and investing in new technologies to save money and time. However, these measures may not be enough to offset the rising costs of doing business, as we said.
Climate, Sustainability, and Inclusivity Expectations
Retailers are divided on the issue of sustainability, where 50% of those surveyed believe they are currently paying enough attention to sustainability, some even going so far as to admit that they may be focusing on the topic too much. As a result, actions regarding sustainable and inclusive behaviour show the lowest priority scores on retailers’ agendas.
However, 38% of retailers are actively experiencing high awareness and demand from customers asking about the sustainability of their products and services, as well as an increase in the number of customers choosing to shop with retailers who are committed to sustainability.
What’s interesting here is that 31% of retailers report opposite signals, with low awareness and demand from customers on the topic.
The complex dynamic around consumer expectations in the realm of sustainability and inclusivity underscores the need for retailers to be proactive in understanding their customers’ needs and expectations. Retailers who are able to effectively communicate their sustainability efforts and demonstrate their commitment to sustainability will be well-positioned to attract and retain customers in the years to come.
Key Consumer Trends
Consumers today are uncertain about the future. They’re looking for trust and security, and have come to rely on reviews and word-of-mouth (WoM) testimonials.
They’re also more informed and empowered than ever before. They have access to a wealth of information about products and services, and are more likely to do their research before making a purchase. This means retailers need to work harder to build trust with consumers.
Building Consumer Trust
One way to build trust is to provide consumers with positive WoM from other consumers. WoM is a powerful form of marketing, and it is more likely to be trusted than traditional advertising. Retailers can encourage WoM by providing opportunities for consumers to share their experiences with others. This can be done through online reviews, ratings, and referrals.
In addition to WoM, retailers can also build trust by providing clear and transparent information about their products and services. This includes information about the product’s features, benefits, and pricing. It also includes information about the retailer’s return policy and customer service. By providing clear and transparent information, retailers can help consumers feel confident in their buying decisions.
Emotional Brand Connections
In today’s economic climate, consumers are more price-conscious than ever before. However, even when looking for a good deal, customers are still driven by emotions. In fact, studies have shown that 95% of consumer decision-making is based on emotions.
Brands that want to succeed in today’s market need to focus on creating an emotional connection with their customers. That’s about more than just selling a product or service; it’s about creating a brand people can relate to and feel passionate about.
One way to create an emotional connection with customers is to tell a story. Stories are a powerful way to connect with people on an emotional level, and help customers understand brand values and ethos.
However, our research indicates that possibly the best way to create an emotional connection with customers is to focus on their customer experiences. Brands who can do that will be able to weather the storm of economic uncertainty, hold their value, and not have to play on price.
Shoptimistic Purchasing Behaviours
Shoptimism refers to those little moments of joy you can give your customers. And whilst your customers may be making.a conscious decision to cut back their discretionary spending, they’re still looking for happiness and enjoyment. This may be through the purchase of low-value items that still manage to make them feel good, or by interacting with brands that evoke moments of joy.
A term coined by Lee Eisenberg in his book “Shoptimism: Why the American Consumer Will Keep on Buying No Matter What”, Shoptimism is the idea that people can find happiness and enjoyment in the act of shopping, even if they’re not buying anything expensive.
Now, there are a few ways to do this. One consumer may buy a $5 coffee from their favourite coffee shop because it makes them feel happy and relaxed, while another may simply and loyally follow a brand on social media because they always post positive and uplifting content. In this latter instance, the spend involved is time, reputation, and sharing (a form of WoM).
By understanding the concept of shoptimism, businesses can create marketing campaigns and customer experiences that tap into this emotion, helping to increase sales and build brand loyalty.
The Currency of Time
Consumers are increasingly time-poor. They are looking for ways to save time in all aspects of their lives, including shopping. This has led to the rise of convenience-focused retail trends such as Click & Collect, Scan & Go, and online shopping portals.
In addition to saving time, consumers also want to be entertained when they shop. They want to have a positive and memorable experience that’s both enjoyable and productive. This can be done through physical interactions in-store, such as interactive displays or scavenger hunts, or through online experiences, such as augmented reality or virtual reality.
If time is a currency that must be well-spent, retailers need to find ways to make every interaction with their brands count. This includes providing consumers with convenient, efficient, and entertaining shopping experiences.
In our next blog we will delve further into the results of the RDG Consumer and Retailer Sentiment research to uncover the gaps between consumer and retailer behaviour, and more importantly what retailers can do to close these gaps.
To download the RDG Retailer and Consumer Sentiment 2023 – Click here
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