Even before March 2020, the retail landscape was changing fast. Ever since, the industry has seen enough turbulence to last a lifetime. A banking crisis. Climate change and the resulting focus on sustainable practices. The rise of, and insatiable demand for, same-day delivery. And now worldwide economic uncertainty.
The economy has caused consumers to change their habits. They want near-instant delivery of everything from fresh onions to SUVs—and they demand to know the carbon footprint of both. Additionally, a high-low pattern has emerged in which many budget and discount retailers are thriving, as are luxury players like Neiman Marcus Group and LVMH—but the vast middle are struggling.
Retailers are under intense pressure to adapt. That may be a tough pill to swallow for an industry whose instinct is to retrench and wait for the economy to improve, but make no mistake: For bold retailers that want to emerge as tomorrow’s leaders, today’s uncertainty should be regarded not as a threat, but as an opportunity to develop competitive advantage.
To that end, we’re highlighting four areas in which investment will pay off.
CX is morphing into ‘phygital’
Customer Experience (CX) is more important than ever—indeed, more important than product and pricing, according to some research. Nowhere is this truer than in retail; as we advise our industry clients, retailers must constantly be thinking about ways to create a personalized, engaging and relevant shopping journey for individual consumers—73% of whom say they prefer shopping through multiple channels. That complexity demands investment in digital …
… Which no longer applies exclusively to online shopping. As the pandemic eased, consumers returned to brick-and-mortar stores for the 2022 holiday season. So retailers must rethink the in-store experience in order to gain competitive advantage. For example, forward-looking players are also recasting their stores as “third place” locales (that is, neither home nor work) in which consumers can do more than just shop. Grocers, clothiers and even cookware chains are adding spaces just for hanging out.
To appeal to both busy shoppers and those who want to hang out, retailers can rethink the store experience in a variety of ways. For the busy shopper, retailers can invest in digital technologies that offer a seamless and frictionless shopping experience, such as mobile ordering, self-checkout or check-out free, and personalized recommendations based on past purchases. They can also offer in-store pickup and curbside pickup options to make shopping more convenient.
For the shopper who wants to hang, retailers can create welcoming and comfortable spaces, such as coffee shops or lounges, in which to relax, socialize, and even work. They can also offer events, classes and demonstrations that allow customers to interact with products and engage with the brand.
By catering to both types of shoppers, retailers can create a more inclusive and enjoyable store experience that meets the diverse needs and preferences of their customers.
It’s all part of the shift toward a model dubbed “phygital,” in which artificial intelligence (AI), virtual and augmented reality (VR/AR), and other digital technologies transform a trip to the store into a richer, longer-lasting, and more profitable experience.
Whether the strategy is to redefine the in-store experience, converge with other industries to expand wallet share, or develop highly targeted and personalized products and services, retailers must remain focused on CX, even in an uncertain economic environment.
Transparency and sustainability
Consumers today are smart, online, and willing to do their homework. Retailers must take heed, because those consumers also value sustainability—in a recent survey, the World Economic Forum found that two-thirds make spending choices “to live a healthier and more sustainable life.” Moreover, governments and regulatory agencies are imposing and enforcing increasingly stringent regulations around sustainability.
As we have noted, this focus calls for transparency on the part of retailers, and that will in turn require investment. To be leaders in this area, brands must gather and share information about how and where their offerings are manufactured, where materials are sourced, and more.
Not long ago, curiosity about such data was non-existent in most quarters. Today and going forward, it’s a key part of the customer journey. Patagonia’s Footprint Chronicles serve as an example of a retail brand embracing transparency. To be a retail leader, it’s increasingly important to recognize and cater to consumers’ sustainability concerns in a forthright manner. Those that make the required investment now will reap dividends when economic conditions level out.
Supply chain resiliency
When Covid struck, businesses in every industry learned a hard lesson about how fragile the supply chain had become. Since then, Russia’s invasion of Ukraine and an energy crisis have underscored the lesson.
Retailers, along with others, have responded by seeking to diversify their supply chain, partnering with multiple suppliers in multiple regions to bolster resilience. It’s important that the sector maintain this resilience—even in a time of economic uncertainty, when the temptation is strong to revert back to a low-cost-wins model.
While longer-term supply chain challenges, such as new geographically diverse partnerships, require more than technology to address, technology can offer retailers breathing space while they tackle structural issues.
Retailers should remember that a flexible supply chain does more than act as an insurance policy during a global crisis; reliable availability of goods is also an important part of CX for consumers accustomed to same-day or two-day delivery.
Relevance with Gen Z
Gen Z consumers (born between 1997 and 2012) commanded $360 billion in purchasing power last year, a figure that will only increase along with their income. In other words, this is an age cohort that retailers must fight for—and conventional means won’t do the trick.
That’s because Gen Z has important traits that play into the trends we’ve already discussed. As digital natives who’ve never known a world without the internet, they are comfortable with both digital-only and multi-channel communication. VR/AR and AI are not intimidating terms to them, but rather simple facts of life.
Gen Zers are also more demanding than older consumers—by far—when it comes to sustainability, transparency, diversity and inclusiveness. They value self-expression and support for the social causes they champion.
To earn Gen Z loyalty, retailers must reach out with an honest narrative about the company mission, values, ongoing efforts—and even setbacks. These consumers want to see evidence that they’re buying from businesses that see the world the same way they do.
Make no mistake, though: Gen Z also keeps an eye on the price tag. How could they not, when 73% are having trouble saving due to the uncertain economy?
Of course, that uncertainty is shared by retailers. But those that want to position themselves to lead in the future must invest now to develop Gen Z loyalty that will last a lifetime.
The retail industry is no stranger to challenges, but uncertainty can be viewed as an opportunity rather than a threat. To future-proof their businesses, retailers must invest in key areas that meet the evolving demands of customers for personalized, relevant, and convenient experiences. This means adapting to disruption by investing in digital technologies and rethinking the in-store experience. By doing so, retailers can create a more inclusive and enjoyable shopping journey. Those that make these necessary investments now will reap the rewards in the future.
Interested in learning more? Tune in to our podcast series, Brand's Impact on Everyone, Everything, to gain deep insights into the latest buying habits and learn how to build a unique brand experience that converts. You can also visit the Retail section of our website, or contact us.
This article was written by Girish Dhaneshwar, Cognizant’s Head of Retail Consulting, and Maya Carmosino, Marketing Manager, Retail, Consumer Goods, Travel & Hospitality.