Another year in the rear-view mirror and, as such, a chance to reflect on the ups and downs of our retail transformation journey. Over the course of 2022, we continued the march into our digital future, asking questions about the role of the physical store along the way: 53% of Brits stated we’re back to pre-pandemic levels of enjoyment for in-store shopping, whilst a quarter now believe there’s no reason to go back to in-store shopping at all.

Despite (or maybe even because of) this conundrum, many retailers are searching for where technology can have the highest impact in revolutionising traditional retail principles and services. This year 12% of retailers started exploring the metaverse and other innovative digital differentiators, and many saw 2022 as the year sustainability cemented itself in our retail landscape, as evidenced by the emergence of ‘Green Friday’.

Then there are the ghosts of retail past. Joules and Made.com were but a few in the long list of retailers who struggled to adapt and fell by the wayside in 2022. Marred by existential challenges to supply chain and rising costs, they simply couldn’t determine a profitable business model in the face of an increasingly brutal barrage of macroeconomic challenges. As we move into 2023, many retailers are trying to make sure that their name isn’t the next on the list, and are looking for new opportunities to create value both for their business and their customers. Here are a few trends to keep an eye on:

1. Sustainable retail becomes the differentiator

Traditional retailers will be forced to fight on many fronts in 2023 and the challenge of creating an authentic sustainability offering is right at the heart of it. As some tighten their purse strings and ‘wait for all of this to blow over’, others understand that they need to act sooner.

There is a real opportunity to ensure ESG and sustainability initiatives are at the heart of this transformation towards a new retail future. With Gen-Z coming into the height of its purchasing power, brands need to embed in their offerings and new revenue streams a sense of purpose that aligns with their consumers' values in a way that feels authentic and considered. This is a particularly prominent conundrum for categories such as fashion and grocery, but consumer electronics and white box retailers must also determine how they help meet consumer rights around end-of-life and circular economy initiatives.

Our prediction: Authentic sustainability is no longer a ‘nice-to-have’ and greenwashing has become a thing of the past. 2023 will be the year we reach the tipping point where organisations who haven’t invested in authentic sustainability will lose market share to those who have. Circular supply chains will become the standard, with consumers recycling or bringing unwanted items back to the point of purchase instead of throwing them out. Having the retailer be the start and end of this journey, and collaborating with customers on this initiative will be the key to success. Retailers will start offering more personalised and rewarding discounts, create deeper loyalty, and collect more meaningful data on customers based on sustainable initiatives.

Consumers are increasingly putting pressure on retailers to invest in technology and provide the information needed to shop in a sustainable way, reduce their emissions, and be part of the circular economy. There are many ways for retailers to meet these needs, but it is up to each company to define this roadmap for themselves, through a combination of providing visibility over their end-to-end supply chain, internal visibility over business values and ways of working (including treatment of staff), and in-store visibility over product information, and providing ways to be rewarded for being part of the circular economy. All of these will help answer the big challenge in 2023 of how to make authentic sustainability profitable.

2. The lines between digital and physical shopping will continue to blur

In 2023, retailers strengthening their digital and technology capabilities will be the key to unleashing the latent power of their physical stores. Consumers have more products and fulfilment options open to them today than ever before, with the ability to order from the comfort of their sofa, receive the item rapidly with next day delivery, and return it for free if it doesn’t quite meet their expectations. Given this, the challenge in 2023 remains a simple one – how do you create enough value in-store to get our consumers back to shopping in the physical world?

With expectations having shifted so significantly, we expect brands to cater to both digital and physical requirements through one connected ecosystem. Online shopping has remained popular, especially with younger, more digitally-enabled consumers. Attracting people in store continues to be a challenge, with many brands utilising store space as showrooms for customers to browse and experience products, often making the actual purchase through a different channel. We increasingly expect the convenience and immediacy of the online shop to have made its way into the physical shopping experience too. Long check-out lines, the inability to find help choosing products, or frustrating product and store layouts could easily drive people to a competitor or simply open their phone and make a quick and easy purchase online instead.

Amidst all of this, there’s still a level of risk when innovating consumer journeys through new tech. Despite the early buzz, ‘Just Walk Out’ and cashless stores didn’t quite take off in the way many had hoped. And consumers never quite used voice channels in the way predicted, with projects like Amazon’s Alexa now being referred to as ‘a glorified clock radio’ that will lose the business 10 billion dollars this year. Businesses will need to do everything they can to ensure any tech investment truly delivers value.

Our prediction: Technology will cement its place for in-store engagement, and enable new and efficient ways to shop. Throughout 2023, retailers will continue to strategise and implement creative ways to use tech to draw customers in-store to increase engagement and efficiency. As such, thinking about practical and convenient uses for technology to help shopper journeys could be a strong way to stand out from the crowd. On top of revolutionising the experience, the evolved retailer in 2023 will have connected data and technology foundations to enable in-store tech and create their own brand platforms to sell adjacent products and services, empowering staff through distributed points of sale, and product information to support customers' buying decisions.

Strategies around the number and format of stores will also be key, as well as a deep consideration for the purpose of those estates and how they have been designed to serve the needs of modern consumers. In 2023, retailers will need to be bold and test new in-store technologies and operating models quickly to learn which solutions are right for them, scaling the propositions that provide the most value. In-store kiosks, digital wayfinding, and scanning products for information are not new technologies, but they’re novel in the context of the average in-store journey. 2023 will see the continued blurring of the lines between our digital and physical technology and brand experience.

3. Retail media networks (RMNs) will be the next gold rush

This could be big. RMNs are the digital equivalent of traditional retail media that enable brands to advertise their products directly online, in-store, or through third parties. Over the last few years, RMNs have made themselves known in the boardrooms of every retailer across the world and many are considering them for their revenue earning potential. In challenging times, they present a unique opportunity to increase the profitability of online channels. A recent report by WPP's GroupM predicts that retail media spending will shift from the current 10.7% of global ad spend and grow by 60% by 2027. That would be an immense rise in both transactions and revenue, and a wave that retailers should ride.

Online has always been somewhat of a paradox for the modern retailer. As the years have gone by, more and more of people have become accustomed to the allure and convenience of digital shopping, flocking to online channels while retailers pull their hair out trying to make digital channels profitable. Once built and implemented, RMNs will monetise customer data through scaled advertising at a global level. Whether retailers choose to build their own or implement an ‘out of the box’ solution, RMNs will allow brands to control the parameters surrounding their product and adapt pricing and information more flexibly than ever before.

Our prediction: The monetisation of retail media networks will lead to a flurry of investment as retailers scramble to design and build a successful model before their competitors. As we move to a cookie-less future, and Apple and Google reduce the ability to track consumer information, retailers will see an increase in the value of robust first-party data monetisation frameworks to generate revenue, which will lead to a much tighter relationship with advertising partners. With RMNs in place, retailers will be able to advertise to consumers on an individual level, merging online and in-store behaviours into one profile to offer customised, unique pricing and products. In 2023, retailers will link their loyalty schemes to RMNs to create immense value and wrestle back control from the Amazons of the world, transitioning back to in-house models for media networks and platform strategy and implementation.

4. Data and AI will become paramount to success

The key to unlocking the potential of all these trends is the robust collection and insightful actioning of data. Subsequently, in 2023 the evolution of artificial intelligence (AI) will continue to change the way we interact with people and products. Retailers are using AI and machine learning to analyse customer data and move towards the hyper-personalisation of product recommendations, pricing model optimisation (including dynamic, personalised pricing), and inventory management, improving the overall shopping experience for customers. Companies whose existing business models and ways of working are not set up to track, analyse, understand, and meet the needs of customers in this way will struggle to compete. Like it or not, organisation-wide transformation across technology, experience, and internal operating models to build the foundations for a successful data business plan will be paramount to success.

To create experiences that delight and differentiate, many will be looking to existing datasets and business models to gain a better understanding and anticipation of customer needs, transforming existing operating models to make the most of this untapped potential. It’s easy to get carried away with what a best-in-class data offering could look like, but the first step will be ensuring foundational technology, data engineering structures, and ways of working are in place to enable business to pull together the right information and create monetisable data lakes.

Our prediction: It's no longer enough to simply be aware of your data and retailers will need to create a complete ecosystem that enables this change. This includes Agile internal operating models and development cycles, modernised technology architecture, advanced in-store technology to create the data sources required, and the technical muscle to action those insights and use them to create new value for customers. Being able to discover and action insights quickly will be crucial and your use of modern cloud technologies will help build these foundations and ensure you can scale at pace.

In 2023, we’ll also see new data and AI models come to the forefront to enable retailers to maximise and best serve high-value customers to ensure they remain brand loyal. An end-to-end pipeline view of data, tightly aligned to value for customers, will carve out a new path to profitability while enabling an inwards view to make the right decisions around cost transformations initiatives. Predictive modelling of supply chain and external factors will allow mitigations to be planned and executed well in advance of impending troubles. With the many disruptions faced in 2022, 2023 is the year retailers will learn to use data to prioritise their scenario modelling of high-risk situations to ensure resilience.

Conclusion

For many in the industry, these topics won’t be revolutionary. In fact, you’ve probably heard many conversations just like these around the office. The challenge retailers face is that the time to act is now, and it’s often very hard to gain momentum and knowledge in these areas in an actionable time to reap the benefits. The black swan event that was Covid has pushed digital transformation to the forefront of everyone’s minds and 2023 will continue this trend. Old retailers will make way for new ones. Some will adapt well and invest in transformation initiatives throughout the macroeconomic challenges, some will instead choose to focus on short-term resilience programmes, and others will bury their heads and struggle to look forward whilst managing day-to-day challenges. I know which ones I’ll be backing.

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