Retail Reduced: August 2023

After a difficult month in July, with a six point fall in the GfK Consumer Confidence Index (CCI), August has seen some renewed optimism with the CCI going up by five points to -25. Commentators put this down to “a backdrop of falling core inflation, higher interest rates and rising average weekly earnings”.

According to the British Retail Consortium (BRC), falling food inflation helped to drive a 10-month slow-down in UK shop price inflation, landing on 6.9% in August, down from 7.6% the month before. Food price inflation fell from 13.4% to 11.5%. The figures would have been even more favourable had the alcohol duties not been increased in early August. Non-food inflation remained at 4.7%.

Retailers have been hit by exceptionally bad weather throughout July, having a knock-on effect on customer footfall, so the slight increase in consumer confidence is welcome. That said, consumers are expected to tighten the purse strings in the months to come due to rising household costs, as the UK ‘summer’ fizzles out and the cooler months begin.

In August, we have seen several initiatives from retailers attempting to draw in their customers, including supermarkets taking steps to slash food prices, while others focussed on enhancing their promotional initiatives. Retailers will be thinking carefully about how to keep consumer confidence over the next months – whether the focus will be on further price cuts and promotions or more focussed on the digital environment or in-store experiences will be interesting to follow.

For now, consumers seem content. Watch this space, as we edge towards the final quarter of 2023 and we bring you the latest retail results in a few months’ time.

With the rapid influx of new generative AI technologies in the past six months, many predict that uses of AI will change the landscape of the retail sector enormously in the next few years. Let’s recap some of the potential uses of AI for retailers:

1. Product design – new product designs based on the analysis of current market trends, consumer preferences, and historic sales data.
2. AI generated product displays – personalised to the user when e.g. browsing a shopping website.
3. Automated content generation – for descriptions of products.
4. Personalised marketing – AI can predict what kind of promotional content will most appeal to each customer, increasing the effectiveness of marketing campaigns.
5. Inventory management & supply chain optimization – AI can help forecast demand and stock shortages according to variables such as trends and season.
6. Customer service – chat bots increase speed and efficiency of customer interaction.

Last month eBay released its Beta version of ShopBot, a personalized shopping assistant that helps people find the best deals from eBay’s one billion listings. By texting, talking or snapping a picture to tell eBay ShopBot what you are looking for, the bot will understand your intent, and make personalized recommendations. Of course, it learns from you and all of its users constantly and will improve with time. Regarding automated content creation, according to a recent Prosper Insights & Analytics survey, ChatGPT is already providing significant support for research (37% of use cases), customer support (28%), and content creation (24%).

Risks

There are numerous risks that may arise from the increased use of AI by retailers, we list 3 below:

• AI hallucinations – when a large language model (LLM) generates false information. This can be done by either misinterpreting or fabricating data.
  • If misinformation is generated by an AI system used by a retailer, e.g. in a description of an item, this may have negative legal consequences and breach advertising standards.
• Lack of transparency – the ability to peer into the workings of an AI model and understand how it reaches its decisions is essential to work out if there are any potential biases.
  • Retailers using AI systems should understand the datasets that they use to train the systems or carefully select third-party providers who take these principle into account.
• Bias and discrimination – AI systems are only as good as the data fed into them, therefore it is essential that retailers choose and test systems that eliminate these biases.
  • Amazon made this mistake in 2018 with its AI recruitment system that taught itself that male candidates were preferable. For example, it penalized resumes that included the word “women’s,” as in “women’s chess club captain.”

Regulation

EU

The EU has recently proposed the AI Act, which will set down rules in the development and use of AI systems on a risk-based approach and establish obligations for providers and users depending on the level of risk the AI can generate. The key overarching principles that apply to high-risk systems will be:

• Transparency (Art. 13) – users must be able to interpret a system’s output and see clear information as to the characteristics, capabilities and limitations of performance of the system.
• Human Oversight (Art. 14) – systems must be effectively controlled by humans to avoid risk to health, safety or fundamental rights.

UK

A recent White Paper has indicated that it will not be implementing cross sector legislation but rather will allow sector specific regulators to consider the impact of AI in their respective sectors and whether additional regulation or guidance is required.

Rather than the rules-based approach of the EU, the UK legislation will allow for a principles based approach, implementing 5 values across sectors:

• Safety, security and robustness
• Appropriate transparency and explainability
• Fairness
• Accountability and governance
• Contestability and redress

As both bodies of legislation are still in nascent forms, we look forward to seeing how they will be applied in the context of the AI uses in the retail sector and the interplay between consumer rights, privacy and data.

The UK government has been consulting on whether to abolish the Groceries Code Adjudicator (GCA) and transfer its powers into the Competition & Markets Authority (CMA), as part of a review of the GCA’s performance under the Groceries Code Adjudicator Act 2013. The role of the GCA includes enforcing and monitoring the Code, and levying fines for any breaches.

The Code helps to control practices by grocery suppliers with a turnover of over £1 billion a year that create an adverse effect on suppliers’ willingness to invest in quality and innovation, through the transfer of unexpected costs to suppliers.

The move was strongly opposed by suppliers and trade bodies who warned the competition watchdog would not have the same impact on protecting suppliers from supermarket abuses.

The government’s third statutory review of the GCA has now been published and it has concluded that “the overwhelming view of retailers, suppliers and others is that the GCA is a highly regarded, efficient and effective regulator”. The government said it recognised the “unique role and needs of the sector” and “the importance in ensuring our food supply chains”, particularly in light of the pandemic and the  war in Ukraine, which the GCA’s understanding of has “helped ensure that suppliers are given a fair hearing and that retailers are aware of their Code responsibilities.”

John Noble, director of the British Brands Group, commented: “Suppliers should be breathing a huge sigh of relief that the government is keeping the GCA independent. An effective GCA is as important as it has ever been and the dedicated scrutiny it gives to the grocery market is a big part of its success. Now is not the time to experiment with new approaches that could make suppliers more vulnerable and make it harder for them to deliver strong value and the choice of quality, innovative products that are so important to shoppers and to a healthy, vibrant grocery market.”

This news will no doubt instil confidence in retailers and suppliers, that value the GCA’s “balanced and collaborative approach” to enforcing the Code, to improve business behaviours in the retail industry. The adjudicator Mark White encourages retailers and suppliers “to get in touch if you think there are any areas where change or greater focus is required.”

Cosmetify, a company specialising in showcasing the best beauty products, has once again ranked Rihanna’s Fenty Beauty as the wealthiest beauty brand, in Cosmetify’s top 10 ranking for 2023. The $582 million dollar beauty brand is the most successful celebrity beauty brand in the world.

Forbes has reported that Fenty Beauty is valued $2.8 billion, with CEO Rihanna owning 50 percent of the company’s value. With an annual revenue of $582 million dollars and more than 12 million followers on Instagram, Fenty Beauty rapidly became the most popular beauty brand in the industry.

The beauty empire is centred around inclusivity, providing make-up for all skin tones: “Fenty Beauty by Rihanna was created for everyone: for women of all shades, personalities, attitudes, cultures, and races. I wanted everyone to feel included. That’s the real reason I made this line,” Rihanna said in a statement to LVMH.

Let’s take a closer look at the keys behind the company’s success:

• Global reach: FentyBeauty.com ships internationally to 150+ countries, and is boosting its global presence. Their range is now available to buy in 8 African countries, and has expanded into Asia Pacific region, the largest and one of the fastest growing markets globally for the beauty and personal care industry, holding 32% of the global beauty and personal care marketplace.

• Social media presence: with influencers making a living using social media alone, it has become common practice for businesses to have Instagram and Tik Tok accounts. Through trending new launches and weekly beauty tutorials, Fenty Beauty has captured the attention of a growing 13 million follower count. Similarly, Kylie Jenner, leveraging her position as reality star, initially promoted her brand Kylie Cosmetics on social media platforms Snapchat and Instagram alone. Kylie Cosmetics has since become the most followed celebrity beauty brand on Instagram – with a following of over 26 million this August. Follower counts are interesting to evaluate; they can often be an indication of cultural shifts and moments worth paying attention to, such as the impact of Rihanna’s Super Bowl appearance.

• Strategic brand cameos: earlier this year, during her long-anticipated Super Bowl LVII performance Rihanna did not miss the opportunity to elevate Fenty Beauty. The brand cameo in which she paused to blot her face with Fenty Beauty Invisimatte Blotting Powder is estimated to have increased the media brand value of Fenty by $5 million! Digital marketing agency Stylophane reported that Fenty Beauty gained significant cross-platform follower increases in the lead-up to and aftermath of the performance.

In the age of celebrity beauty brands, it will be interesting to see how such companies continue to evolve and stay relevant to audiences of all ages in the coming months and years.