Are retailers ready for consumers to start spending again?

Over the last twelve months, there has been a notable shift amongst consumers. Fewer than half (43%) the consumers are worried their personal finances will worsen in the next 6?9 months - yes still high, but this is down from 80% just a year before. While there is a long way to go towards recovery, and consumers are still maintaining a cautious approach, this shift is an important signal to the industry that suggests the tide may be turning.

So, what does this mean for retailers? Our annual Consumer Trends research for 2024 reveals some interesting shifts in consumer habits, and insights that can help retailers shape their strategies for the year ahead.

Consumers expect more from brands

Our research found that consumers are demanding greater transparency from retail brands. For the most part, the expectation used to be focused on sustainability in sourcing and manufacturing. ?Now, reportedly 65% of consumers expect retailers to share transparency in pricing too. Demanding that products affected by shrinkflation and skimpflation should carry warning labels on the packaging. ?

However, with retailers facing the impact of rising production costs and reducing brand stickiness, how do organizations future-proof their business while also meeting consumer expectations and demands?

Companies willing to re-evaluate their operational strategies will be the ones to thrive in today’s ecosystem. They will not only become more resilient by transforming operations, but they can also then offer cost benefits to consumers, earning consumer loyalty as a result. Nearly three-quarters (73%) of consumers in our survey said they would be more loyal to companies that help them through difficult times, while 71% said that they would purchase more products/services from such companies in the future.

Enter generative AI

Beyond changes in consumer spending habits, we’re also witnessing change in the way consumers make purchasing decisions. Last year, generative AI took center stage in significantly influencing shopping behaviors and habits. Our research found that around one in five consumers use generative AI to shop, and over half of those consumers have already made purchases as per recommendations made by generative AI tools, such as ChatGPT. Importantly for retailers, while it’s probably no surprise that Gen Z consumers are most likely to have bought products recommended by AI (55%), the trend isn't exclusive to the younger generation - 52% of Gen X and 43% of Boomers also believe that generative AI tools have improved their shopping experience. Generative AI is here to stay.

Naturally, many retailers are already taking notice. Carrefour, for instance, has embedded ChatGPT-4 into its online services, allowing online shoppers to choose products based on their budget and food constraints as well as seek new menu ideas.

Retailers are increasingly employing GenAI tools for personalized experiences, facilitating timely and relevant interactions to enhance individualized shopping experiences. However, GenAI’s role is not limited to just enhancing the consumer experience. Nearly eight in ten retail organizations say that the technology can help improve internal operations and enhance areas such as facility maintenance. It can significantly help overhaul logistics like route optimization, operations management, and supply chain optimization. Thereby enabling organizations to adapt and respond quickly to demand fluctuations and/or changes in market conditions. The opportunities are limitless, and it’ll be interesting to see how more retail businesses integrate generative AI into not only consumer-facing spaces but also their internal operations.

The rise of social commerce

Social media platforms, driven by social media influencers, have been key to retailers’ growth strategy for some time now. This year and for the foreseeable future, these platforms will continue to play a crucial role in product discovery, and purchasing too, especially among younger generations. Currently, nearly 50% of Gen Z consumers and 44% of millennials discover products via social media, with Instagram and YouTube leading the pack followed by Facebook and, of course, TikTok.

So, why are more and more consumers turning to social media? Well, in short, people buy from people. Our research shows that more than half the consumers who have purchased products via social media said that the access to reliable and genuine reviews significantly affects their purchasing decisions.

Needless to say, retailers must actively tap into the power of micro-influencers to unlock new channels for growth. With careful consideration into influencers that best represent their brand and values, its imperative retailers invest in influencer networks to co-create and share genuine human stories aligned to their products/services. Ultimately, building such online communities will help establish deeper, more personal connections with their consumers.

Sustainability holds firm

Affordability may be the primary decision-maker, but consumers also want eco-friendly products. Our research shows that in 2024, sustainability continues to be an important factor for shoppers.

What’s more, consumers are now looking to brands and retailers to help them understand sustainability goals and execution. Importantly for retailers, currently more than half of consumers don’t trust the sustainability claims made by companies and feel that they need more information to make purchase decisions. We found that 63% of consumers want brands to play an active role in their education around sustainable products.

Almost half the consumers would welcome detailed labels and scannable QR codes on product packaging so they can learn about their carbon intensity, water use, and product recyclability attributes. Companies that help people address this issue will build lasting brand loyalty in the process.

?

In the face of a challenging year ahead, retailers can navigate uncertainties by adapting to compete, unlocking channel growth, and leading with purpose. By being proactive, adaptable, and consumer-focused, retailers can position themselves to not only overcome challenges but also emerge stronger, more resilient and with a more loyal consumer base for years to come.