As 2024 looms ever closer, the seismic changes in the retail industry in recent years are rearing their heads, but the sector remains steadfast in its resilience.

Supply chains have been hit hard by successive global conflicts, increasing environmental disasters have amped up pressure on companies to reach sustainability targets and rapidly developing technologies have left regulatory bodies and industry leaders scrambling.

Given these overlapping issues, it would be understandable if some industry professionals want to leave 2023 behind and welcome in the new year.

To provide some assurance on what the next few years could look like for the retail industry, GlobalData invited TS Lombard senior global economist Dario Perkins, GlobalData thematic research director Ed Thomas, retail analyst Neil Saunders and Just Style managing editor Laura Husband to offer their retail expertise.

A ‘soggy’ macroeconomic environment

TS Lombard senior global economist Dario Perkins opened with an explainer on the global economy and the forecasted recession that never materialised.

Perkins stated: “There’s been a complete misunderstanding of what’s been happening in the global economy. People have been trying to apply a classic business cycle to a world that isn’t in that cycle.

“After enormous distortions from the pandemic and the Ukraine invasion, we’re in a fairly soggy environment in which a recession may or may not happen.”

He asserted that if a recession does occur, it won’t look anything like what people imagine.

“In the recessionary dynamic that people think of, there’s a precipitous collapse, people lose their jobs and there’s lower spending in the corporate sector. But we’re just not seeing that anywhere right now.”

Europe is apparently closer to a recession than the US, but the forecast looks mild. To the joy of the retail industry, Perkins anticipates that over the next two or three years, there will emerge a stronger economy than in the 2010s.

Resilient retail consumers

Propping up the global economy as ever is the adaptable consumer base that has navigated the mires of high inflation.

Retail analyst Neil Saunders attributes resilient consumer spending to defiance: "I think there's an attitude with consumers like, look, the world is in a terrible state. It's in this poly-crisis, with all these different things going on. There’s a psychology that says I'm still going out to spend and enjoy myself, I'm not going to worry too much about the future, because everything looks terrible, I can't control that.”

However, he pointed to the “underlying distress” of global personal debt increases in the “patchwork of consumers”.

“People are planning a lot more than they used to. They’re pickier and shopping around to get better value, trading down into the value channel.”

Perkins added that as inflation eases and wages accelerate: “we’re never going back to the prices that we had before the pandemic, but I think we will gradually grow into them. It’s just that the next 6-12 months will be frustrating.”

The pandemic was a profitable time for retailers due to an injection of stimulus and the diversion of consumer spending away from travel and towards retail.

But Saunders explained: “People are spreading their spend more thinly and so gains are difficult to come by for individual retailers. There’s lots of saturation in one of the most competitive sectors of the global economy, which doesn’t mean there’s no room for new entrants. But there’s now the emergence of winners and losers.”

He assured the audience that recent bankruptcies such as Bed, Bath and Beyond’s in the US are no real cause for pessimism. “People always say that these cases are due to recession but no, they were just a terrible retailer.

“That's the difference between success and failure in retail. It's not actually the economic backdrop, which people love to blame. It's actually what the retailer does and how they position themselves in the changing dynamics in the market. Some are brilliant at it and do phenomenally well while some aren't so good. And that's the way it should be. That's the market.”

Traversing retail supply chains

The whirlwind of change within the industry has also inevitably affected supply chains, as Just Style managing editor Laura Husband outlined: “The changes that have happened are now here to stay.

“New pillars within supply chains now are nearsourcing and a diversified supply chain mix. This is feeding the on-demand element for consumers and brands want hubs closer to that final point of purchase.”

Husband added that brands and retailers are also being pushed to focus on their extended producer responsibility and social and environmental due diligence, as “they’ve got no way around that”.

Ultimately while inflation is decreasing, the supply chain is still fighting high shipping and fuel costs, making it difficult to drive home the sustainable sourcing that consumers want to see.

The pull of AI in retail

Having developed beyond a trend or buzzword, artificial intelligence (AI) technology is becoming essential for retailers of all sizes. However, consumers are growing distrustful of risks around data privacy and want AI to work for them, not just for businesses.

GlobalData thematic research director Ed Thomas explained that federated learning, which uses multiple servers or edge devices to train an algorithm, supports better data privacy. This makes it a popular choice for retailers.

He continued: “The interesting thing about data is that it produces a divide among consumers. All consumers are concerned about what happens with their data, but younger consumers have largely grown up giving it away. So, I think they're pretty much resigned to the fact that social media and essentially big tech companies will have access to a lot of their data.

“The main question is what consumers get in return for giving their data away. If they get better service, faster delivery, or price discounts, then these are incentives.”

Consumers are reassured by their data being kept only on their personal devices, which in turn will produce personalised insights for businesses. Having access to billions of data points is useless without actionable insights, the panellists agreed.

Conversational AI in e-commerce was once the main topic for businesses, but as Thomas described: “that didn’t take off because chatbots are quite stupid and customers get put off by that kind of experience.”

He added that generational AI could just be another topical wave, but that in general AI will become embedded in everything.

Saunders advised retailers to “experiment and understand the use cases of technology. Retailers get excited by the next shiny thing – last year it was the metaverse and this year it’s AI.”

He agreed that AI has a lot of applications, especially back-of-house and operationally, “but when you're starting to use it front of house, which is where people were also looking to use the metaverse, you need to put it in context and use it as the icing on the cake. Not as some kind of replacement for the cake itself because the cake is still your stores or website.”

Retailers that can balance macroeconomic shifts, changing consumer behaviours, supply chain challenges and implementing emerging technologies are certain to come out on top.