by Jess Morris, Head European Marketplace Manager, at B-Stock
As we near the end of 2022, consumer confidence has dropped to the lowest in recorded history according to Statista. The most recent data from the site states the Consumer Confidence Index (CCI) of the United Kingdom was 93.1 in August 2022, compared with 102.1 a year earlier. This is important information for retailers as we enter the golden quarter for retail—when innovation will be key to help respond to the impacts of inflation on consumers’ shopping behaviour.
One key lesson learned from the pandemic is that we should expect the popularity of online shopping to continue to soar. Based on the 2021 Mastercard Spending Pulse report, online holiday retail sales increased by 11% over the previous year. Further, online sales in general made up 21% of total retail sales—up from 10% in 2020 and just 14% in 2019. With inflation expected to reach 10% in the final quarter of 2022, consumers will be seeking out the best value for their money. This means online shopping tools will be pivotal as consumers diligently compare prices across multiple sites.
Shoppers across all generations will be searching for affordability more than ever, increasing traffic in the secondary market. Recently, eBay’s “Pre-loved” campaign launched in conjunction with Love Island, and sites such as Depop and Vinted are also becoming increasingly popular among the younger, eco-conscious generations, with affordability as an added benefit.
Additionally, businesses should expect that consumers will be carefully budgeting—this means less impulse buying and more buyer’s remorse. Surveys on consumer gifting show a trend towards more useful presents, items that a giftee might usually buy for themselves.
So, how do retailers stand a chance at success in a turbulent economy full of cautious consumers? According to a report by Retail Economics and digital wallet HyperJar, UK businesses will lose £12bn this year in the sale of non-essential items as shoppers cut back. Many retailers will reduce their in-store inventory to avoid being left with unsold and obsolete stock.
Expect, too, an earlier kick-off to 2022 Christmas shopping, with consumers planning to spread costs across more paydays. Retailers must focus on offering deals during key periods such as Black Friday and Cyber Monday. It’s virtually guaranteed that record sales will be conducted online. Shoppers will buy multiple gifts from a single retailer to save on shipping and retailers with physical stores will grow their online sales 50% faster than those without. An online and a physical presence are musts.
Finally, retailers need to back winners in the run-up to end-of-the-year holidays, to avoid being left with heaps of undesired items come the season’s end. It’s apparent that retailers walk a knife’s edge between offering enough but not too much. So how do retail operations manage this balancing act?
One of the benefits of living in 2022 is the data we can leverage with cutting-edge tools. Using modelling from COVID, buyer behaviour data, and confidence indices, paired with real-time inventory tracking and return rates and reasons, retailers have a wealth of
information at their fingertips. The hardest part is identifying the action amongst the numbers and learning from previous years of change.
There are three types of machine learning algorithms that are worth investigating during this time of flux:
The classification of customer reviews. Set up correctly, this machine learning tool can help decipher if a consumer would recommend your brand or product. This information can help improve the product, minimise returns, and reduce obsolete stock on the shelves.
Item demand forecasting machine learning. As stated on the tin, this helps forecast future demand. Despite fluctuations in the market, it’s still a worthwhile venture to compare one year to the next and gain a little light in the dark.
Predicting customer satisfaction. Reviews left by customers help track mindset and indicate products they may want in the future. A machine learning model can help determine the potential rating for future orders placed based on historical data.
Despite all efforts to ease the pain of inflation and minimise returns, there will always be—as surely as death and taxes—excess stock to manage after the festive season. For example, ASOS experienced a significant increase in return rates in Q3, showing that inflationary pressure on customers is evident. The biggest opportunity for retailers to improve bottom-line growth is to reduce the cost of returns.
Yet it’s not as simple as just placing items back on a display. They must be sent, received, logged, repaired, repackaged, discounted, re-shipped—or otherwise disposed of. Each of these takes a chunk from the original retail value. That’s scary considering that in H1, Next revealed the online return level had reached 42%. Unsurprisingly, retailers have looked for ways to recover these costs, with stores like Zara and Boohoo now charging for online returns. So, how can retailers limit loss?
There are multiple ways in which retailers can limit loss through physical clearance or by online liquidation of overstock via B2C or B2B. As with most strategies, having multiple outlets and minimising reliance on a single supply chain is the best way to clear out surplus goods and achieve some return on stagnant inventory.
So, come what may, in 2023 there are great solutions to make the new year just a little easier for businesses.