Deloitte study: Retailers expect price to be more important than brand in 2023

Price will be more important for consumers than brand this year, two-thirds of retailers estimate, a potentially troubling predicament, as shareholders are pressuring retailers to push price increases to compensate rising costs, according to Deloitte Retail industry outlook 2023. At the same time, seven out of ten participants identify labor issues as the main challenge of the year, and almost all of them expect inflation to pressure their profit margins, and the changing consumer to impact their medium-term activity.

According to the study, 70 percent of respondents believe that persistent supply chains disruptions will impact the retailers’ growth during 2023.

To effectively address changing consumer challenges, retailers need to improve their online commerce infrastructure, such as last-mile capabilities, reverse logistic, and social commerce, the study recommends.

On the other hand, online shoppers have higher expectations regarding last-mile delivery, so eight out of ten retailers plan significant investments to modernize their supply and distribution chains this year. More than two-thirds are very confident that they will be able to deliver a seamless experience to buyers, but for this purpose they should consider creating more profitable last-mile delivery solutions by investing in automated micro-fulfillment centers, which can increase storage capacity and throughput rates, fill orders for multiple stores, and create efficiencies in human resource management.

“E-commerce has been gaining ground in European countries, including Romania. Growth has accelerated during the pandemic, and although it has subsequently moderated slightly, marking the consumer’s willingness to return to in-store shopping, the latest data shows that the future of commerce is online. According to Eurostat, in 2022, 64 percent of European Union citizens bought products or services online, 1 percent above the 2021 level. The most active in this direction are young people aged 25 to 34 (87 percent bought online in 2022). In Romania, the share of those who buy online is only 46 percent, but we are among the EU countries with the highest growth rate recorded in the last ten years. Therefore, retailers need to adapt to this trend and offer customers complex e-commerce related services (more attractive ways of presenting products, fast orders processing, easy returns), given that, at least in the EU, buyers are increasingly interested in ordering products from retailers in other member states,” said Raluca Baldea, Tax Partner, Deloitte Romania, and Leader of the retail and consumer industry.

At the same time, the study shows that e-commerce has generated concerns regarding return levels, much higher than in-store purchases (30 percent vs. 10 percent). Due to consumers’ inability to see and try on the product, half of consumers order multiple sizes and colors to find the right item. In these circumstances, retailers need to provide accurate product information online (size, images, and description) while integrating tools to allow for more precise product representation (based on augmented reality). For example, when the product is visualized in 3D, the return rate is 40 percent lower. In addition, using artificial intelligence in the analytics system can help prevent fraudulent returns by identifying trustworthy customers and speeding up repayment times. These tools not only save costs, but also improve the customer experience.

As retailers take stock of the changing consumer, they see increasing potential for social commerce, as 60 percent estimate consumers to purchase products directly on social media platforms this year. An enabling factor is that digitally native generations, much more involved in social commerce than previous ones, are gaining more purchasing power. As a result, seven out of ten retailers expect closer collaboration with social networks and influencers to benefit the social commerce scale. The study recalls that in 2022, 94.4 percent of the millennials were smartphone users, and the average time spent on social media increased by more than 60 percent in the past decade, to eight hours per day in 2021. At the same time, 61 percent of social media users trust influencers, while only 38 percent follow brand recommendations.

The Deloitte 2023 Retail industry outlook was conducted in the United States among 50 retail industry executives, responsible for major strategic decisions in their organization. Out of these, 70 percent were from companies with annual revenues of $10 billion or more.