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It’s with genuine excitement that I start to write my annual Five Things article for 2023. This past year saw me transition to a new position as Chief Commerce Officer and return to Integer, a company that has always been close to my heart and where I first fell in love with digital and retail.
As I return to write down these thoughts, I continue to be amazed by the progress and diversity of change that has happened in just one, short, year. I keep thinking I will run out of topics and that the pace of change will slow down but I have been proven wrong once again…and thankfully so.
To start, it is great to revisit my mindset from a year ago and contextualize it with the year that has been. Looking all the way back to January of 2022, my Five Things for last year really centered on consumer’s excitement around returning to in-person shopping. Also, how retailers were ready to welcome them, and their new expectations around what a shopping experience could (and should) be. You will see that continue to evolve this year as numbers from the Census Bureau and others consistently show tremendous growth. I spoke specifically about real-time service integration, like BOPIS and curbside, finally gaining maturity and how it is hard to imagine a time when they weren’t readily available. That includes a Starbucks coffee coming out with my Target curbside!
I got some things wrong last year too, well at least partially. We didn’t see the advancements in digital tools creating more value exchange for consumers and made very few strides in improving accessibility and equality in the landscape. As you will read below, technology may be taking a bit of a turn but the need for that accessibility will remain. Finally, 2022 may have been the year of maturity for Retailer Media, which I didn’t even mention, and I won’t leave it out this time around.
As for 2023, we are going to see a shift in technology focus for retailers as they try to tackle improved operational efficiency. This will make way for ecommerce product innovations, both in the stores and the products they sell. Additionally, the returns problem, as highlighted in the great 2021 article by Amanda Mull from The Atlantic, may be one of the keys to solving profitability, a huge focus for retail as recession looms.
Stores Continue to Adopt the Best of Online
As I visited local malls during holiday shopping, there was no missing the “DTC Darlings” that were well represented in full brick-and-mortar. Warby Parker, Casper and a multitude of athletic and clothing brands made up as many as 20% of stores in some places. By now it is well documented that DTC is more of a launch strategy than a holistic business proposition and access to the full suite of shoppers must, ultimately, come from physical stores.
However, DTC has dramatically changed expectations around product and, specifically, what to expect in stores including ratings and reviews, video, AR and customization. In 2021 and 22, we saw that shoppers specifically indicated a desire to replicate online shopping tools in the real world. People see value in product reviews (56%) and things like price comparison tools (39%), and for those who are under-30, 80% said they would be more likely to shop in such stores, according to a Reflect study.
Mass adoption of QR-codes and built-in mobile features like PWAs and NFC make it easier than ever to provide these types of experiences without major consumer-focused technology investments. As a result, we may see technology resources start to be re-allocated in 2023.
Retailers as Platforms
Maybe the largest shift we will see in this era of ‘digital transformation’ will be technology focus moving away from consumer-centric apps and toward store operations and efficiency. In many cases we will see retailers following the lead of companies like Walmart and placing more power in the hands of associates, everything from timesheet management to utilizing AR with customers.
Others are focusing on using AI to better plan inventory and expedite store layout solutions. It also wouldn’t surprise me to see both the operational (employee) and consumer-facing tools come closer together. This reality will turn retailers into platforms comprised of digital tools, physical stores and integrated systems for inventory, POS, marketing, transactions, and promotions. This reality will also empower the next trend in direct-to-consumer offerings.
Direct-to-consumer Breaks Free
As we have learned over the last handful of years, direct-to-consumer retailing is hard…and not very profitable. A big part of the investment traditionally has been the platform set-up, design, and maintenance to enable these transactions. Brands who wanted to sell direct had little option but to create a fully functioning store. That is going to rapidly evolve in 2023. Instead of one centralized storefront, brands and retailers are going to be able to empower transactions across channels utilizing the best tools for each circumstance.
As I write this, Shopify has just launched a component-based architecture, creating a ‘headless’ ecommerce platform. Just the latest move from a company who understands the future of ecommerce, specifically DTC, doesn’t have to be a one-size-fits-all proposition. In fact, we are going to start to see commerce ‘engines’ powering individual experiences, sometimes on multiple different platforms, across the same company.
These new technology structures allow for a de-coupling of inventory, customer data and functionalities from the transactional nature of individual interactions. All these disparate experiences will be ‘tied’ together on the back end and activated via APIs to suit the channel and desired commerce experience upon it. Thus, providing more flexible, cheaper and faster options to react in the market. The result is it will be easier for legacy retailers to act like DTC-startups and for DTC brands to transition into physical retail, all to the benefit of the end consumer…and continued evolution toward platforms.
Product Innovation and Returns hold the Key to Profitability
Even outside of DTC, delivering profitability across the omni-channel landscape is a priority for retailers and brands alike. Every aspect of product, operations and fulfillment are being analyzed to find new or better ways to deliver for clients. If the Pandemic was about quickly standing up new services, this year will be about making them work smarter. I believe that both product and returns provide huge upside opportunities in the creation of this bottom-line savings.
Its 2023 and we are only a year away from Forrester’s prediction of eclipsing 1/4 of all sales online, but we are still (for the most part) selling products online which were designed for display on store shelves. Sometimes these products are hard to package, or hard to break into ‘eaches’ or just plain inefficient to ship. There is now critical mass of demand from consumers for brands to start doing more innovation around product design, mix and sizing specific to the online channel, with profitability as a key design tenet.
On the other end, ecommerce in general generates a 30% return rate (an even higher amount in certain categories like apparel). Aside from designing product packaging, sizes, and configurations specific to ecommerce, this return issue is evolving as well.
Both Forbes and RetailWire predicted an accelerated elimination of free returns in the coming year, which will be an adjustment for online shoppers. We already see The Gap, REI and others eliminating them to bolster profitability in the channel. So, moving forward, making it easy, efficient, and inexpensive to return is needed to enhance the customer experience and offset these new costs.
Retail Media is Not an Island
2022 was really a coming-out party for Retail Media. Its importance in strategic marketing planning and sheer volume of investment grew at more than 30% to eclipse $40B. Holding companies like Omnicom and GroupM predict this number to be 60% growth in today’s dollars by 2027.
The masses are now in retail media and new networks are popping up all the time, but there are still a lot of growing pains. Sophistication of offerings varies widely; managed services still dominate a lot of smaller retailers, and the measurement environment is still talking about which metrics matter most and how to get them. The prediction (for me) in the next year is the coming together of retail media into a holistic omni-channel approach. This will help to advance the integration of offerings and give exposure to those data points which drive business results in coordination with other efforts in retail.
Currently companies take budget for retail media from different buckets, including trade dollars, traditional marketing and merchandising but tend to remain siloed in their retailer-by-retailer and product-by-product approach. The exciting evolution for this space will be on both the shopper and organizational side, by creating holistic programs that shoppers see online in stores, search, social and marketplaces.
To make this happen, companies need to cross these silos and, in many cases, bring different agencies or marketing partners together. CMO Mike Black of Profitero summed it up coming out of this year’s ShopTalk conference by imaging a world where a single brand + agency team looks at (and approves) retail media, in-store display, and online content simultaneously with the consumer at the center…I couldn’t agree more.
Everything, Everywhere, All at Once
Fun as always to product, this year’s Five Things provides specific prognostications but, more importantly, illustrates a continuity with larger marketplace trends. First is that customers feel freer than ever to move seamlessly between retail channels and services to create a mix that works for their circumstance. The second is that technology is no longer an affiliation or marquis offering for brands and retailers. Instead, it is the engine that powers experiences for customers, 63% of whom still think there is a long way to go.
See you next time…Steve
