With the height of the pandemic largely behind us, retail businesses have focused on restoring profit margins and bracing for what is sure to be an unpredictable economy this year.
Big challenges are on the horizon, from high interest rates to a shift in consumer spending toward experiences and geopolitical conflicts snarling supply chains. While retailers have proven nimble in the past, there are two big trends the industry should consider keeping to help weather the storm and two they should ditch.
Trends to keep in the new year:
- Generative AI. Shopping may seem more digitally focused than ever, but retailers have yet to incorporate and stretch the full potential of technology, namely generative artificial intelligence to improve everything from their marketing to supply chains. For instance, Instacart partnered with OpenAI on a function that lets consumers ask open-ended questions such as “What should I have for dinner?” It then makes a recommendation and connects consumers to specific products. Wayfair has invested in generative AI tools such as Decorify, which allows shoppers to see a digital version of a redesigned room.
- Physical stores. Despite the growth of e-commerce, people still really like shopping in person. That made 2023 a big year for retail real estate. Grocery stores, discount stores and restaurants rushed to grow their physical footprints. Shopping mall owner Simon Property Group reported a 95.2 percent occupancy rate at the end of the third quarter, up 70 basis points from a year earlier. With more retailers experimenting with in-store exclusives and experiences, retail real estate is likely to continue to be a big part of how people shop.
Trends to ditch in the new year:
- Drone delivery. As the character Regina George says in the cult classic movie “Mean Girls,” “Stop trying to make fetch happen.” For retailers, that means drone delivery. Walmart and Amazon.com have tried to get drone delivery off the ground, but it never quite takes off. It’s a neat idea: some flying contraption delivers your order right to your door from out of the sky. But it’s one of those innovations that seem more like a tech flex than something that actually solves any problem. Amazon’s drones can only safely deliver packages weighing up to five pounds that don’t include anything breakable (deliveries are dropped from about 12 feet in the air). They also are limited by harsh weather. Walmart’s drones only operate during certain hours and can only deliver packages that weigh less than three pounds. Walmart, the largest U.S. retailer, says its drones lower packages to the ground with a tether. This all seems very inconvenient.
- Self-checkout only stores. Fred Meyer parent Kroger and Dollar General experimented over the last year with stores that only have self-checkout as retailers sought ways to reduce labor costs and speed up transactions. But the promise of self-checkout as a time- and cost-saver has proved to be a bit overblown. Shopper complaints mounted over errors, waiting times as associates helped other customers or even finding no one was available to address problems. The frustrations with self-checkout even inspired a gag event called “Walmart Self Checkout Employee Christmas Party” on Facebook that caught the interest of more than 41,000 people. What’s more is self-checkout is also contributing to retailer “shrink” from theft. Shoppers sometimes scan a cheaper item for a more expensive one or skip scanning certain items altogether. Self-checkout might seem cheaper than labor, but ultimately retail thrives on a human touch.
