Woman in front of screens full of data
Review What happened this year in retail? And what’s to come?
A turbulent year for retail is drawing to a close. What happened to the trends that were forecast for online and traditional retail? And what should retail companies brace themselves for in 2023? We take a look back at the past year and glimpse into the crystal ball to see what the future holds.
In the trade media, it’s always the same at this time of year. Sector analysts and experts sound out current developments and proclaim what they see as the most important trends for the upcoming 12 months. But what became of these forecasts in 2022? And how might the coming year look for retail?
Geopolitics ruined all forecasts
Around 12 months ago, all the signs in retail pointed towards “normalization”. It seemed like we’d overcome the pandemic, and a return to normal life looked possible. A somewhat new normal, but anyway... Almost nobody could have imagined that just a few weeks later, war would come to the European continent.
But all the forecasts and trend predictions for retail were shot out of the water by the Russian war in Ukraine. Instead of investment in new technology and the expansion of portfolios, 2022 saw supply chain problems get worse.
And far more importantly, great uncertainty amongst customers worried about the future. Just like retail, they too have been hit by the rapidly rising inflation worldwide. Not a good outlook for private consumers or for large investments.
Department stores in crisis and numerous projects postponed
People worrying about whether they’ll be able to pay their electricity and gas bills watch their spending very carefully.
One of the most prominent victims of this consumer reticence is definitely department store group Galeria Karstadt Kaufhof in Germany. Once again, the company has been forced to make severe cuts and close even more branches. The traditional department store is deeper in crisis than ever.
The insolvency of shoe store chain Görtz remains almost a side note, as does the closure of the digitally driven BonPrix store in Hamburg. This was meant to drive forward nothing less than the next technological retail revolution.
As the new year approaches, the metaverse has increasingly been viewed as the “place to be” in the virtual world. However, Meta – the parent company of Facebook and the major player behind this development – has announced massive job cuts.
Of course, there have also been “lighthouse projects” this year, such as the opening of a Rewe Group “Pick&Go” store. But these are isolated events that haven’t changed the face of retail a great deal.
And despite the much-hailed demise of cash, it’s still hanging in there. Obviously, notes in a wallet are still important to people in times of crisis.
Talking of paying, the erstwhile darling of analysts and the media, Klarna, which rose to prominence with instalment purchasing and payment by invoice, has had to question ever more frequently whether its business model remains effective in times of rising interest rates.
And while “quick commerce”, with its extremely fast delivery services, emerged as an important trend at the start of the year, wild takeover battles, sobering considerations among venture capital investors and insufficient baskets have since dominated the headlines.
In short, many forecasts have not come to fruition because of the economic situation. And technological trends, such as social commerce, have gained little traction because the projects relating to them have been postponed.
The challenges for 2023
A review of the last 12 months shows clearly how quickly all forecasts can prove false when fundamental conditions change. For this reason, this annual outlook is limited to perhaps the greatest challenges (online and store-based):
- High cost pressure: increasing energy costs are putting retail under pressure. Lighting, heating and cooling for stores and warehouses are becoming more expensive. This forces greater cost discipline and saving. For retailers with large stores, previously postponed projects for greater energy efficiency, for example in lighting, could prove more financially worthwhile.
- Higher purchase prices: goods being produced are also struggling with rising energy and procurement costs. Purchase prices for products (not just in food retailing) are rising, and margins are getting tighter.
- Need for greater efficiency: as rising costs can only partially be passed on to the sales prices, the retail sector and online retail must find further efficiencies to relieve staff from time-consuming routine work and improve customer support.
- Supply chain problems: the global economy has not had enough time to come to terms with the impact of the coronavirus crisis. The war in Europe is disrupting supply chains and goods replenishment. This is particularly noticeable for online retailers who operate using the drop shipping model.
- Shortage of staff: staff shortages, especially in retail, are not just a problem affecting Switzerland. Across Europe, retail companies are desperately seeking staff. Even more important is the requirement to increase efficiency and use these staffing resources optimally.
- Increasing risk of default on payments: instalment purchasing and payment by invoice (summarized under “buy now, pay later”) are a proven method of expanding customers’ shopping baskets. However, the risk of default rises for retailers to the same degree as private household finances deteriorate. Managing payment types and risk management is becoming more important.
So besides all the technical innovations, there are many challenges and a great deal of work ahead for retail.