A look back at last year’s Retail Trends – what we said vs what actually happened

As we prepare to share Deloitte’s 2023?Retail Trends, I feel compelled to take a look back at events over the last year and the progress being made on the six key trends we identified at the start of 2022.?

What a year it has been. At this point last year, we started our Retail Trends webinar by talking about how the pandemic had disrupted consumer?behaviour and supply chain efficiency. We warned about the prospects of inflation, and even talked about the prospect of another wave of COVID, but overall we were optimistic that the sector was set for a recovery driven by tailwinds such as the new spending power of Gen Z, excitement around the metaverse and ongoing innovation across the sector.

Nothing could have prepared us for what was to come.

The Russian invasion of Ukraine and the resultant energy crisis has led to surging inflation, which in turn has seen a tightening of monetary policy, much higher interest rates and a risk of recession all casting a shadow on economic prospects across the globe.

The impact on retail has been significant.?Consumer confidence?hit an all-time low, falling to lower levels than during the height of the pandemic. Reduced real incomes have given consumers no other choice but to cut back on spending and, as a result, consumers have become more price sensitive and are actively changing their purchasing habits; trading down and switching brands and stores while cutting back on all non-essentials.?At the same time, retailers are facing rising input costs across the board meaning that margins and profits are under constant pressure.

How the last year affected investment

Given the financial pressures faced by retailers and consumer products companies over the last year, it is no surprise that some of the trends we identified were slower than others to materialise. For many businesses, the last year means that capital expenditure on R&D and innovation is under scrutiny like never before. But I am pleased to see that there are still businesses out there bringing new ideas to retail and capitalising on all the opportunities that the latest technology brings.

Last year we presented?six trends for the retail sector, focused on: the rise in spending power of Gen Z, the rise of digital products and the advent of Web3; the growth of rapid and autonomous delivery; the diversification of business models; the importance of the circular economy and the need to collaborate with purpose.?

Out of these six trends, which ones accelerated at pace? And which ones fell victim to the cost pressures of 2022??

Generation Z starts to splash the cash

What we said: Attracting Gen Z becomes more important as they become both customers and employees. The generation born between 1995 and 2010 has now joined the workforce. Not only do they have their own spending power and are no longer reliant on parents, they also have strong and distinctive wants and needs that retailers and brands need to provide for.

What happened: Gen Z were perhaps the worst affected by the cost-of-living crisis last year, suggesting that they should have been less of a focus for retailers. However, the channels used to engage with Gen Z that we identified last year continued to grow in importance. For example, both social commerce and marketplaces have continued to thrive – in fact, in 2022, the worldwide revenue for social commerce was $724 billion.

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Retail in a digital world

What we said: The online and digital retail world is no longer the sole preserve of the agile start-up or online pureplay business. We have begun to see the major established retail businesses fight back by embracing digital themselves. The modern retailer’s journey into digital sees them adapting their core, exploring digital products and experiences, and exploring the metaverse .

What happened: Digital and even Web3 have continued to play a huge role in retail strategy. For example, Nike have had great success in the Metaverse.? Thanks to their acquisition of RTFKT, it is estimated that?Nike has already made at least $185.3 million in revenue on Web3 products and a further $1.29 billion in secondary royalties from allowing co-creators to produce virtual goods.

Nike have further cemented their position as leaders in the Metaverse through additional collaborations with Roblox and the launch of dot swoosh, a Web3 community that aims to introduce more of their existing customer base to the Metaverse through the trading of?‘phygital’?(hybrid physical and digital) goods.

Speaking of Roblox, they recently reported that one billion in-game avatars were acquired in the first 3 quarters of 2022, with 70% of their users saying that their real-life clothing choices were influenced by their digital wardrobes. With this kind of growth, there is no doubt that with the right strategy, there are real opportunities to generate significant revenues in the metaverse in the future.

Convenience scales up

What we said: With consumers demanding a frictionless and often contactless retail experience, checkout-free stores, ultra-fast and autonomous delivery are rapidly becoming mainstream.

What happened: Of all our 2022 trends, this one was the most hit and miss. The added cost of convenience – and in particular rapid/hyper delivery – has made it less appealing to consumers at a time when every penny counts.?

After a period of rapid expansion, we have begun to see consolidation of the hyper-delivery sector. With both cost pressures and falling demand pushing business models to their limit, the sector is searching for a route to profitability. As a result, we are seeing a substantial amount of new partnerships and even acquisitions within the sector. How this plays out will be interesting to see in the year ahead.?

Elsewhere, Amazon and Walmart have announced plans for drone deliveries at scale, showing what could be possible in terms of autonomous deliveries in the future.

Retailers diversify their businesses

What we said: Conscious consumerism and a challenging market is encouraging retailers to diversify and move into completely new businesses to utilise their assets better and find new sources of growth.

What happened: Using existing assets to find new growth opportunities has been a big focus for retailers over the last year, with several retailers?looking to maximise the potential for revenue in the private and commercial real estate. For example, John Lewis Partnership has teamed up with?Abrdn?to secure a significant investment in their plan to build new homes.

Circularity and traceability in demand

What we said: Circularity is on a fantastic growth trajectory with the second-hand clothing sector expected to grow faster than fast fashion. Meanwhile consumer attitudes towards sustainability mean that traceability is a critical capability required to deliver on climate promises and achieve science-based targets to reduce emissions.

What happened: Given the pressures felt by retailers, the ability of some to act on/invest in sustainability has been brought into question.? That being said, the circular economy has gone from strength to strength with resale platforms, in particular, becoming commonplace across the fashion industry.

And while sustainability might have dropped down the agenda for some, for others it is a core part of their business. For example, perhaps the single most significant moment for sustainability and retail this year was when Yvon Chouinard gave Patagonia away to a charitable trust so that all profits would be used to fight climate change.

Collaborate with meaning

What we said: Through progressive and distinctive collaboration retailers can achieve something greater than the sum of its parts. In the year ahead, retailers and brands will collaborate to create brand distinctiveness and to tackle the biggest issues in society, such as climate change.

What happened: Collaboration continued to be important for retailers looking to grow their business. But maybe not for all the reasons we discussed. Collaboration was actually a great way for retailers and brands to save money by growing their awareness without investing in more costly forms of advertising. However, we also saw the dark side of collaboration, with brands badly affected by their alignment with individuals who shared discriminatory opinions in public forums. The speed with which brands distanced themselves from celebrities when their views threatened to damage the brand highlighted the need for meaningful, purposeful collaboration.?

Retailers have continued to put competition to one side in order to collaborate on issues like climate. With organisations like the British Retail Consortium helping bring together companies from across the entire retail value chain to help guide the industry towards net zero.

Meanwhile the collaboration between retailers and charities was brought to the fore by the cost of living crisis with retailers doing even more to support those in their communities who needed the most help.

What could we have done differently?

With the benefit of hindsight, our 2022 trends might have looked quite different – no doubt they would have ramped up the focus on supply chain and cost pressures, or dealing with inflation and falling consumer confidence. But actually, looking back, it’s clear that each of last year’s trends presented opportunities for some retailers to engage with consumers and grow their business, just not necessarily at the pace or scale we predicted.?

I am excited to explore what 2023 might bring at our?Retail Trends 2023?annual webinar on 26 January. Although as this exercise in accountability has proved, perhaps the one thing we can expect in 2023 is the unexpected.