5 Big Takeaways from Retail’s Big Show (NRF 2023)

Retail is back. At least that was the main message the National Retail Federation wanted to send. New York City's gargantuan Javits Center was teeming with booths, businesses, and banter. Keynotes for the most part were bullish about the state of retail, even as consumer spending fell for a second straight month in December 2022, and retail sales plunged -1.1% accordingly.

Indeed it was this contrarian view that surprised me the most. It is undeniable that consumers have shifted their buying habits in 2022 due to inflation, oil prices, and a war abroad. They are racking up credit card debt, tapping into their pandemic-era savings, and losing purchasing power as personal income has not kept up with inflation. Yet, retail executives struck a positive tone, as if they were looking past a housing market slowdown, additional Fed interest rate hikes, and a looming recession.

Our VTEX Customer Success team sat through over 20 lectures at the Big Show last month, covering topics from conscious capitalism to the metaverse to sort through the clutter. We’ve condensed our notes in five key takeaways to help you navigate what analysts believe to be a critical year in retail and double down on the main growth drivers of 2023.

Key Takeaway 1: Cash is (Still) King

If you were fortunate enough to sit through Macy’s Inc. chairman and CEO Jeff Gennette’s keynote, you would have walked away with an MBA. Gennette’s operational mastery was entirely on display during his talk with Bloomberg’s Caroline Hyde. I was particularly curious to learn how Macy’s staved off near-bankruptcy during the pandemic to close the year on a net positive earnings guidance.

Keep in mind: in 2020, Macy’s took the controversial move to close down their San Francisco tech hub and relocated Macys.com tech operations to New York City. That’s right; amid store closures and furloughs, Gennette decided to rein in Macys.com (their only functioning storefront at the time) closer to corporate strategy. They didn’t have many believers back then (myself included). But the results two years later are nothing short of extraordinary. Macys.com and the Macy’s app are key pillars of their retail strategy (codename Polaris). Digital sales now comprise about 40% of Macy’s sales – remaining well above their pre-pandemic levels.

During his talk, Gennette emphasized a key strategy that merchants should pay attention to: net cost model—taking the allowances of inventory buys upfront instead of discounting the unit at its tail end. This tactic, implemented during the early days of COVID-19, empowered Macy's to drastically preserve cash flow and shore up their balance sheet. Suppliers typically offer cash allowances that can be used as discounts by retailers. But instead of marking the price down when the item is near its end of life, Macy’s keeps the price closer to the initial retail price, and pockets the supplier allowances up front, shoring up margins. Which is precisely the point of this first key takeaway: in any economic downturn, cash is still king. Investors will value (and reward) a company’s cash position as a sign of liquidity and resilience ahead of tough times.

Lowe’s chairman and CEO Marvin Ellison—who was awarded the NRF’s Visionary award this year, and is arguably the greatest human being ever to lead a Fortune 100 company—said it best during his keynote address: “the difference between turnaround and transformation is in the balance sheet.”

Key Takeaway 2: Culture is The New Marketing

Retailers are eyeing the jostling in purchase power between Millennials and Gen Zers – the latter now has become the most predominant consumer with almost $100 billion to spare. So it was only fitting that pretty much every lecture at NRF 2023 covered something like brand authenticity, conscious capitalism, and purpose-driven mission. They even had Simone Biles headlining one of the event days. She is 25 and sounds like your average 25-year-old Gen Zer.

So whether you are Hollister, Chobani, or Nordstrom, engaging Gen Zers is a top priority. But marketing to Gen Zers is much more than a sponsored ad on TikTok. Welcome to the age of purpose-driven companies:where everyone has a program of impact to talk (brag?) about.

Nordstrom donates shoes for kids and now recycles beauty products. Chobani fights childhood hunger and hires refugees. Hollister does a Hollister-brand-ambassador-thing for popular high school teens to become even more popular (they know their ideal customer profile). Never before have companies become so focused on their social impact (read: obsessed about what Gen Zers think about their social impact). Gen Zers have shown to care deeply about the culture of where they work just as much as that of companies they choose to interact with.

In fact, companies like Target and Whole Foods have incorporated that level of purpose-driven mission into their company culture. Target’s CEO Brian Cornell showcased his culture in action, embracing diversity through Target’s (almost) all-women retail leadership. Culture, Cornell said, has to permeate the whole organization. Even assortment decisions have inclusivity goals, like colors and designs made to complement darker skin tones. Culture has to extend to partners, suppliers, agencies, and the entire ecosystem. So when the Christmas Eve blizzard stranded shoppers at a local Target in Buffalo, NY, the store manager, empowered by Target’s culture, decided on the spot to turn a desperate situation into a guest slumber party.

Whole Foods Market’s CEO Jason Buechel reinforced the message of a purpose-driven mission as crucial to Whole Foods’ value proposition. Whole Foods’ core customer cares about quality standards, animal welfare, environmental stewardship, ethical trade, banned ingredients, and a whole bunch of other stuff that justify paying that extra markup for cereal (or not). So their mission has to work through the entire supply chain for them to deliver on that promise.

Culture is more than just a purpose-driven mission. Gen Zers also demand minority representation (thank goodness). And Macy’s CEO Jeff Gennette offered perhaps one of the best metaphors for diversity and inclusion. Gennette likened diversity to the people at a stadium, watching a game; inclusion as the people playing on the field. Do they represent those watching in the stands? And equity as giving all the players on the field what they need to play at their best. You bet folks at Macy’s are up for this challenge. Gennette himself is one of the few openly gay CEOs of Fortune 500 companies.

So, takeaway number two: Gen Zers will eventually rule the world. How you attract and retain them is not a matter of marketing (the old way) but a matter of corporate culture (the new way). And yet only 37% of retailers believe the fact that 79% of consumers want sustainability. So, be one of them.

Key Takeaway 3: Embrace The Future (Because It’s Here)

Web3, artificial intelligence, machine learning, the metaverse. If you are unfamiliar with any of these terms, now’s the time to immerse yourself. Each of these innovations promises to transform the way we interact with technology (and with each other).

It is not just corporate culture that Gen Zers are influencing. They are also pushing retailers and brands to adopt new ways to engage. Tommy Hilfiger and Nars, for instance, have created experiences on Roblox (the real Metaverse?) to engage with their key demographics (teens and young adults). Indeed, Roblox has over 100 brands telling their unique stories on the platform today. They expect to have just about every brand represented very soon. For Gen Zers, 2 in 5 (sadly) say their digital identity is more important than their physical identity (IRL).

If retailers like Walmart and Claire’s are experimenting with Roblox, you should take note. Not convinced? I wasn’t either, until I attended WGSN’s Andrea Bell and her 2025 predictions session at NRF. Bell’s research is inspiring, influential (standing room only), and ultra-relevant. She opened my eyes to what the future will look like.

Bell spoke about the rise of generational fragmentation and the decentralization of digital culture. Millennials are aging out of the internet, and Gen Zers are more attracted to niches. In fact, according to Bell, niche is the new norm (and a new web3 platform), so retailers should think about how that shift (from mass to niche) will impact their business strategy.

It is also the age of algorithmic anxiety with machines feeding and creating content. The fear of logging on / off—FOLO—is real. TikTok algos predict and push gender content ahead of teens themselves knowing what they identify with. Algospeak is a new language, and I’m clueless. Note: I’m an older Millennial, so what the heck do I know anyway?

Bottom line: the future is here, and it is made with synthetic creativity. It only takes about 15 minutes (and 3 AIs) to make a fake human, according to Bell. AI as an industry is expected to grow to the tune of $422 billion by 2028. If that CAGR holds (39.4%), then Microsoft’s $10 billion investment in OpenAI’s ChatGPT seems like smart investing. How will you change your ad spend when Bing goes AI later this year?

There are plenty of bets to be made in this new world. My point is: the next generation of consumers (Gen Zers, Alphas) will be hugely influenced by these technologies. They will grow up with Dall-e 2, DAOs and ChatGPT. The time is now to invest in new experiences and build your company’s competence in these nascent channels. How will you incorporate these new strategies into your business model? Key takeaway 3: You have a first-mover advantage here, a unique chance to lead the next generation of digital experiences. Now’s the time to enter this space, experiment, and establish yourself as a leader.

Key Takeaway 4: Keep Your Pandemic Playbook On Hand

The global economy is slowing down with many predicting a recession in 2023. How can one navigate this period of high inflation, slow demand, and potential economic calamity? The answer: pretty much like we did in 2020.

During his keynote, Kroger’s chairman and CEO Rodney McMullen shared what the pandemic has taught him. McMullen provided evidence of how much consumer behavior had shifted in grocery stores. People rediscovered home-cooking during the pandemic and he is seeing signs that the shift is persisting to this day. Naturally, Kroger’s investment in capabilities like digital shoppable recipes is paying off.

Inflation, another key driver of consumer behavior, is forcing people to trade brands for private label offerings. Even those with more discretionary income—I know I have. Whole Foods Market’s CEO Jason Buechel highlighted his 365 private label’s expansion strategy: of growing the “good” (read: value) versus the better and best options traditionally provided by national brands.

Companies in the consumer packaged goods business are being squeezed out of the market. Not just in foodservice, but across the board. Nielsen puts private label’s market share at 15% in October and 11% overall. If that doesn’t seem like a lot, consider private labels had only 6% market share two years ago.

So what’s a CPG to do? Kroger’s McMullen remarked on his collaboration with national brands to lower costs for his customers and help households stretch their budgets—through electronic coupons. Hint: this was a tactic Kroger employed during the pandemic. McMullen said consumers downloaded over 1 trillion coupons from the Kroger app through October 2022. In his opening remarks, Walmart’s U.S. President and CEO, and NRF chairman John Furner dropped this gem, “loyalty at retail is the absence of something better.” Or, choice eats loyalty for breakfast.

In fashion, Saks Off 5th President and CEO Paige Thomas said that this holiday season was the most competitive one she could recall. Her advice on bulletproofing a business during a recession: focus on your ideal customer profile. Measure customer engagement and experience metrics, map your customer journey, and solve their problems. Thomas said investments such as shipping notifications, delivery promises (SLAs), and choices on delivery options have all contributed to Saks Off 5th’s bottom line.

This leads us to the third key driver of consumer behavior: convenience. Convenience has systematically changed an entire grocery vertical since the pandemic. For Kroger, that means customers now expect instant delivery—30 minutes to 1 hour—and McMullen has built the digital wherewithal to deliver on that value proposition: Kroger app and shopping lists on their website. The same can be said about Saks Off 5th’s digital strategy: their mobile app is a crucial strategy for increasing retention, return purchases, and lifetime value of their ideal customer.

What is happening in grocery and fashion can easily apply to other verticals. My key takeaway 4: when times get tough (they will) use your pandemic playbook. The lessons learned through the shutdowns may be the same ones you could use in the eventuality of an economic meltdown.

WGSN’s Bell suggested we should all build a black swan team. What would you do if we entered into a recession? If China attacked Taiwan? If a novel virus disrupted your supply chain? In light of these likely scenarios, you could end up with similar answers as the ones learned in 2020: customers will want the ease of online shopping, access to the best deals, and the convenience of instant delivery. Walmart’s John Furner summarized his model of “cost-effectiveness, ease of purchase, and personalization” as essential pillars of Walmart’s business success.

Key Takeaway 5: The Best Case Yet for Omnichannel

My final observation during NRF was no surprise at all. 2023 will be the year of omnichannel. In his recent research, VTEX’s own Jordan Jewell, determined that 55% of businesses are still in the early stage on the maturity curve when it comes to omnichannel. We’ve been talking about omni for well over a decade now. Even after the pandemic, when we saw traditional channels upended by shutdowns, most retailers still struggled to implement this strategic imperative.

If you had any reservations about pushing ahead with your omnichannel strategy, consider this: in 2018, Lowe’s website crashed in the middle of Black Friday. They were running on a decade-old platform. That straw broke the camel’s back for Lowe’s chairman and CEO Marvin Ellison. He had just been nominated CEO in July of that same year. Realizing Lowe's was performing outside the market, Ellison changed his leadership team in four months. He honed in on the four fundamentals of retail: product selection, supply chain, operational efficiency, and customer engagement. And then he added a fifth retail fundamental: ecommerce.

Fast-forward to 2020, and Lowe’s had modernized their tech stack. They had moved their ecommerce operations to the cloud, as any retailer should. When the pandemic hit, in Ellison’s words, Lowe’s was able to meet the incredible demand surge because of their focus on ecommerce transformation. He told us it would have been catastrophic if they hadn't made those changes.. Lowe's closed 2020 with $8.7 billion in ecommerce sales, up more than 110%.

Ellison is bullish about the role of brick and mortar. He called it retail’s “essential competitive advantage.” Because of the physical proximity to delivery areas and a strong retail associate network, Lowe’s can now deliver over thirty thousand SKUs within hours. Lowe’s is offering same hour delivery, upping the ante on those offering same-day delivery. Lowe's Ellison leveraged the entire store network to become an omnichannel juggernaut, connecting its online properties (site and app) to get the product to the consumer most effectively and efficiently.

Ellison posed this challenge to other retailers in the room: do you have the stores and can you connect them to your website? If you can, Ellison said, you will achieve the holy grail of retail: convenience without friction.

It wasn’t just Lowe’s that had doubled down on ecommerce as a fifth pillar of retail excellence. Throughout NRF, we heard stories of retailers, from Macy’s to Whole Foods Market to Saks Off 5th, driving omnichannel integration as a key differentiation strategy. Forward-thinking retailers used the shutdowns to accelerate their omnichannel capabilities so that when the economy reopened, they were better positioned to compete against ecommerce pure-players. As consumer demand continues to drive omnichannel preferences such as BOPIS, curbside pickup, and ship from / return in stores, retailers have a unique advantage that can impact not only the customer experience but also the bottom line.

This unique advantage drives Whole Foods Market to continue investing in physical stores. CEO Jason Buechel is planning 50 store openings this year alone. He sees stores as an experience and part of his overarching omnichannel strategy: to deliver the very best experience in store and online.

Kroger is doubling down on technology in 2023. McMullen is a big proponent of tech, saying it affects everything that they do as a retailer. The role of technology, he said, is to make a person a better merchant. To that effect, Kroger is allocating 3-4x more resources in technology from a year ago, reaffirming that they are not slowing down on this critical investment. Kroger’s acquisition of Albertsons allowed them to reallocate resources to do even more. One example McMullen shared: warehouse consolidations after the merger freed up $500 million in cash which was used to directly lower prices to consumers, and $1.3 billion investment to remodel stores. Technology and retail go hand-in-hand.

In summary, key takeaway 5: If you are one of the 55% of retailers in Jewell’s report, 2023 is the year to fully connect your stores with your digital channels, and make inventory and fulfillment your strength.