Retail reduced: January 2023

In this month's retail reduced article our retail experts look at updates and activity in the sector including new changes to the consumer experience in 2023, trading performance for retailers over the Christmas period as well as emerging trends in 2023 and beyond.

New changes to the consumer experience in 2023

We can expect a number of new developments in 2023. For this edition, we will have to narrow our predictions slightly.

D2C – social shopping?

Direct to consumer or ‘D2C’ marketing will continue to bring in revenue within the sector, particularly with the younger demographic. The idea of this sales strategy is to cut the middleman to an extent – bringing the consumer face to face with a brand.

Social networks have become increasingly important in consumers’ lives when using them to shop. According to Kantar Media’s e-commerce ON 2020 study within the US, 18% of online purchases were made on Facebook, Instagram, and WhatsApp, particularly in the case of beauty and fresh food categories. This indicates a growing trend which will likely be reflected globally. According to experts, live shopping could make up 20% of all e-commerce sales by 2026 and the livestream e-commerce market is predicted to reach £28 billion by 2024, a 3x increase from 2021.

Marketplaces can also facilitate this, with studies showing 66% of consumers now search for products on Amazon rather than Google. They offer the advantage of allowing companies of virtually any size to establish a market presence and reach more customers than they can on their own.

Data privacy – giving more control to consumers

The infamous website cookie that we all encounter and ‘accept’ on web pages may become a thing of the past. Organisations will begin to be more transparent about their data practices by providing individuals with more control over their personal data. Individuals may be able to access, correct, or delete their personal information, or opt out when quizzed on whether they want their data to be collected.

Interestingly, in 2022, 73% of shoppers expected brands to understand their unique needs and expectations. 62% said they not only want but expect personalization, and that a brand that doesn’t offer a personal experience could lose its business. We wonder how these consumer demands will be met by brands that are increasingly regulated when it comes to tracking user habits.

Christmas trading in 2022

In our December newsletter, we looked at the trading performance over the pre-Christmas period and found that the rise in inflation had been masking the challenging trading conditions within the retail sector. Christmas and New Year have come and gone, and the results are in.

Unsurprisingly, a similar trend over the Christmas period emerged, with shoppers clearly prioritising value over ‘frivolous’ expenditure. Many retailers reported strong sales, with overall year-on-year sales growth at 6.9%. However, as was the case with November’s Black Friday sales, figures seemed to have been skewed by the high level of inflation. With the ongoing cost-of-living crisis, consumers continued to rein in their spending and sales volumes fell by 5.8% compared to December 2021. According to the Office of National Statistics (“the ONS”), this represents the worst-ever fall since records began in 1997.

That said, there were some ‘winners’ over the festive period. Primark recorded £3 billion worth of sales and value grocery retailers Lidl and Aldi also did very well, attributing approximately £63 million of their trade to have been won from traditional grocers, due to the increased importance of value for consumers.

Although traditional gifts, such as toys, beauty and electricals had a strong Christmas, grocery sales were higher than £12 billion over Christmas, the highest amount on record. Following the emergence of the Omicron variant the previous year, consumers appeared to be keen to splash out on the Christmas dinner this year. In addition, footfall in the shops increased, while online sales dropped from 25.9% in November to 25.4% in December.

Sustainability in 2023

With the impact of global warming continuing to be felt, we have taken a look at how some retailers have started 2023 with commitments on sustainability. Several initiatives have been announced already this year and it is expected for this trend to continue as the year goes on.

Starting in the supermarket space, Waitrose intend to replace the majority of their small wine bottles with aluminium cans with a view to saving in the region of 320 tonnes of packaging. Waitrose noted that nearly three million small bottles were bought last year. The benefits of making this change include cutting CO2, due to the significantly lower output generated from aluminium cans compared to glass bottles, and being able to recycle these cans an infinite number of times. M&S Food are trialling paper carrier bags in 10 of their UK stores in a bid to offer a plastic-free alternative. The bags will be able to hold a weight of 15kg and are likely to become standard if the trial proves successful. The trial aims to find the best sustainable carrier bags which benefit both the environment and the customers.

In addition, Currys has announced that it will be extending its in-store recycling incentives to online customers, stating that it has processed 750,000 tonnes of e-waste since 2011. This involved the recycling of 15 million individual technology products. Customers will receive at least £5 worth of in-store credit when they drop off the unwanted items as part of its ‘Cash for Trash’ initiative. Currys stated that, in the last year, it paid out £10.5 million to customers who brought in their electrical items to be recycled. Based on a study by Research Without Barriers, more than 50% of UK shoppers throw away unwanted technology products when they buy new devices, despite 41% saying that they want to be more environmentally aware in 2023.

Lastly, the UK Government is looking to bring in a ban on polluting single-use plastics, including single-use plastic plates, trays, bowls, cutlery, balloon sticks and certain types of polystyrene cups and food containers. The ban will be introduced from October 2023 and will require retailers to rethink their reusable offerings.

Gaming Strategy in the Metaverse

Luxury retail brands were amongst the first players to venture into the metaverse, through online gaming. Balenciaga's creative director Demna Gvasalia blurred the lines between physical and digital by introducing a Balenciaga model as a digital avatar, sporting the brand's outfits in 2022. Similarly, Louis Vuitton jumped into the virtual world with the launch of the adventure-based game Louis: The Game – taking players through six different worlds, teaching them about the brand's history.

This January, we have seen such methods of increasing brand digital presence being used by mid-market retailers. H&M launched Loooptopia, a metaverse extension of its recycling programme, through gaming platform Roblox, which allows players to explore a futuristic city filled with H&M stores and create virtual garments. Linda Li, head of customer activation and marketing, H&M Americas, said: “People who shop and wear H&M garments and accessories are increasingly spending time in virtual spaces and digital worlds. The H&M Loooptopia Experience on Roblox is now allowing us to explore new ways to engage with our current and new customers in the places they love to be, both online and offline.”

This is an important trend in the retail space; 80% of consumers believe a brand’s digital presence is equally as important to its in-store presence. If other, mid-sized retail brands successfully enter the gaming ecosystem, they would be reaching a huge channel for audience expansion, unlocking an immensely immersive way to start building relationships with the next generation.

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