Significant innovation across the sector has enabled retailers to respond to changes in consumers’ shopping habits amid the rising cost of living.
Head of Retail and Wholesale, Barclays Corporate Banking
Retailers are optimistic for growth and are adapting and evolving to keep pace with consumers who are responding to the rising of cost of living.
Our research highlights that retailers are confident they have sophisticated data capture systems that inform their business and improve the consumer experience. The majority, however, have not fully integrated those systems yet to provide a single view across the organisation. Retailer focus should be on innovation if they are to create operational efficiencies, deliver the optimum customer journey and raise their sustainability credentials.
The rising cost of living is, understandably, impacting the way consumers shop for groceries and non-essential items. Shoppers are visiting stores and websites online more frequently and taking longer to shop. With less money to spend, shoppers are spending more time researching what they buy and having clear criteria on which to judge purchases. One way retailers are adapting to this is by introducing new technology to help customers make decisions instore, with 22% of respondents already implementing this. The key to future success will depend on using data and technology to ensure customers evolving needs continue to be met and exceeded.
Consumers still value an instore shopping experience with visits increasing over the last 12 months. Convenience is the top reason for choosing a physical shop, along with many believing the best offers are found instore. As attention turns to keeping costs low, consumers also say they want to avoid charges from online deliveries and returns. Yet retailers cannot ignore the importance of an online presence. Online accounted for 25.3% of all sales in May 2023, while 70% of shoppers say they use the internet to help make purchasing decisions1. Maintaining a presence across both physical and online channels remains a priority.
Retailers are optimistic about future growth and profitability, despite the rising cost of living having an impact on consumer spending. Our Consumer Spend Report indicates that Overall Retail spending grew 6.0% in June 2023, with Grocery spend growth up 9.2% compared to this time last year. However, as inflation continues to rise, forcing many consumers to focus on cost, businesses will need to be innovative to maintain growth. Retailers have recognised the need to invest in operational efficiencies to deliver the best possible customer experience across their entire organisation.
Gathering personal information about consumers is fundamental to ensuring retailers align their offerings with how customers shop. Our research shows that individuals are willing to share their data with businesses in return for rewards, with 83% of shoppers saying they are members of between one and four loyalty schemes. In response, retailers will increase spending by an average of 12% on data-capture technology which will hyper-personalise offers for customers. We predict Artificial Intelligence will play a significant role in helping retailers deliver the ultimate individual shopping experience.
Retailers are investing to ensure they have the most sophisticated data and technology, complemented by specialist staff able to manage complex systems, and that is set to continue. Our survey finds that retailers will – on average – increase spend on data capture and use by 10% across their operations.
Central to that investment is Artificial Intelligence with expenditure by the retail sector predicted to increase from $5 billion (£3.95 billion) to above $31 billion (£24.54 billion) globally by 20282. However, digitisation is a journey and retailers need to ensure their technology remains aligned with how their customers want to shop.
Retailers are becoming increasingly sophisticated in data capture, but they need more integration across channels if they are to use that information effectively. Our survey reveals that 48% of retailers have integrated systems to some degree, while 30% have a single view across the entire business, but this is set to grow. Retailers tell us they plan to invest in integration, making unified commerce an integral tool for retailers in an increasingly competitive market.
Optimising efficiency is a key focus for retailers across their organisations from stock management and store layout to supply chains and logistics. Data will increasingly inform how businesses run their operations, with 93% of retailers believing that effective capture and use are integral to their future profitability and growth. We also see intelligent innovation through collaboration; for example 22% of retailers have partnered with another brand to share space. These types of alliances, alongside advances in technology, will continue to ensure retailers continue to fire on all cylinders.
More than ever sustainability considerations drive how consumers shop. Seventy percent of consumers say the availability of sustainable products determines where they shop and 66% say it is important retailers have a clear environmental strategy. Retailers are taking ESG seriously, and 70% have produced a sustainability strategy. The next step is for retailers to link their key ESG objectives to their financing sending a clear message of intent to key stakeholders.
Supermarkets are the most advanced retail sector when it comes to sustainability; with 78% saying they have an ESG strategy in place. Eight of the UK’s biggest supermarkets, that collectively account for 80% of the grocery market, have signed up to the Waste and Action Resources Programme and World Wildlife Foundation joint initiative to standardise measurement and reporting of harmful emissions from food and drink.
A key focus for businesses in this space will be continued investment in systems to effectively measure and implement their ESG strategy. Only 58% of retailers say their systems are sophisticated enough to do this currently. These efforts are supported by industry associations including the British Retail Consortium which published a Climate Action Roadmap, to help businesses in their green transition.
Measuring direct carbon emissions and waste output, understanding the impacts of supply chains and monitoring social challenges such as modern slavery are not easy to measure or indeed change quickly. Whilst accountability sits with individual businesses, they are increasingly seeking support from specialist advisers and driving collective change through industry bodies.
ESG Strategy and Propositions, Wholesale Lending, Corporate and Investment Banking
Customers are willing to share data in exchange for rewards. Developing an effective loyalty scheme will not only help increase repeat custom but can also provide data which can be used to improve the customer experience.
The consumer journey is increasingly complex but knowing how to give customers what they want - and when and how they want it - has never been more important. Retailers need sophisticated systems that allow them to effectively capture and analyse relevant data to help understand and optimise how their customers interact with their business.
Focus on ensuring how retailers can harness operational data across stock management, supply chains and explore partnerships with other brands, to help streamline the business, saving both time and money.
It is no longer enough to have data siloed across different business operations and channels. Retailers need to integrate systems to ensure consumers receive a cohesive, optimised experience, and to improve efficiency across the business.
Consumers value companies that take ESG seriously. Retailers should link ESG KPIs to financing which can be tested by legitimate auditors and provides a clear, easily communicable road map to achieving the end goal.
Improve the organisation’s chances of obtaining the right finance for growth by explaining to lenders how the business is prioritising data and technology and the positive impact this will have on performance.
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This data was gathered via bespoke market research conducted by Censuswide among businesses and consumers across the UK. The consumer sample of 2,010 general consumers (UK) was collected between 24 – 26 May 2023. The business sample of 601 senior decision-makers in the Retail and Wholesale industry, working in businesses with turnover of £6.5m+, was collected between 18 – 24 May 2023. Censuswide abides by and employs members of the Market Research Society and follows the MRS code of conduct which is based on the ESOMAR principles.
