Since the outbreak of the pandemic, retail has had to face new crises – from large-scale lockdowns to skyrocketing energy prices. At the same time, there is an immense need for investment in the future topics of digitization and sustainability. How is retail doing in times of ongoing crises? That’s what experts said during the two-day trade congress in Berlin.
In view of ever new states of emergency, the question now arises as to how important investments in long-term issues are at the moment. Buzzwords like sustainability and omnichannel once marked the big trends in retail, at least before the pandemic. Since then, with the supply chain problems, the issue of the availability of goods has come to the fore, and with the rising energy costs and inflation, so has cost saving and cost ratio.
“Have we been dealing with topics for six years that have lost their relevance?” asked Thorsten Zierlein, partner at the management consultancy Deloitte, on Wednesday in a lecture during the trade congress in Berlin. “It’s going back to what has defined retail for decades. In other words, which product do I sell at which price to which customer.”
Back to the basics
According to Zierlein, more than 90 percent of the retailers surveyed said in a study by Deloitte that they had to change their business model. The question now is: in which direction?
The priorities given show a return to the fundamental coordinates of retail. For the companies surveyed, it is firstly about the availability of goods and secondly about cost savings, said the management consultant. In view of the people who are unsettled by inflation, companies also prioritize a price-performance ratio that is considered fair.
The survey by Deloitte shows that the focus of retail companies is currently shifting away from topics such as convenience, digital interactions and metaverse. Interestingly, however, the customers surveyed say that topics such as sustainability and omnichannel continue to play a major role for them.
set priorities
The search behavior of people on Google also shows that the topic of sustainability remains relevant. The search for the term organic seal increased by 150 percent, as a presentation by Jannika Bock, Managing Director Retail at Google Germany shows. At the same time, searches for the keyword inflation increased by 170 percent.
People’s uncertainty is also reflected in the search queries on Google that start with “how” or “why”, said Bock on Thursday at the trade congress in Berlin. For example: “Why is there inflation?”
Consumer behavior is changing at an ever-increasing rate, she said. As an example, Bock cites the seasonal shift in the search for winter fashion this year. While searches for winter jackets in the two previous years only increased from October and remained high into December, searches in 2022 started in mid-September and then flattened out in mid-October – probably because the temperatures were still unusually warm.
No surcharge for more sustainable products
Some changes in assortments and categories can also be observed in the need for more sustainable products. A survey by Deloitte shows that while sustainability remains important to people, the willingness to pay has fallen sharply.
Only 30 percent of respondents would accept a price premium for more sustainable goods across all product categories in 2022, compared to 67 percent last year. This year, 70 percent of those surveyed indicated that they would generally not be willing to pay an additional amount for more sustainable products. For example, consumers tend to continue to buy more sustainable groceries but avoid cosmetics, said Egbert Wege, partner for customer and marketing at Deloitte.
Price beats convenience
The behavior of customers is also shifting when it comes to omnichannel. During the pandemic, people started shopping online for categories of products they had never bought before, now using the online channel to research availability and costs.
“That means online remains important, but there is also a small shift there,” said Wege on Wednesday in Berlin. Price comparison and product availability have become more important, it is no longer primarily about online experiences like the Metaverse.
Currently, customers are not always willing to pay more for convenience, but only where the price-performance ratio is right. More than 63 percent of the people surveyed by Deloitte are willing to forgo convenience in favor of price. Retail companies should now think carefully about where to focus on convenience, says Wege.
With these short-term changes, the question naturally arises as to how relevant investments in previous retail trends such as digital are: “Do we have to change the entire agenda overnight?” asks Zierlein
Investments still outstanding
The answer to this question is important because the need for investment in the areas of sustainability, digitization and further training of employees remains high. The five million European companies that are active in retail and wholesale will have to invest an average of 0.8 to 1.6 percent of their sales here by 2030, according to a study by the management consultancy McKinsey for the EuroCommerce association.
This corresponds to a total of 315 billion euros if the industry sets less ambitious targets or 615 billion euros for ambitious commitments. The study estimates that smaller companies will shoulder 10 percent of this expenditure, while large companies will have to contribute 90 percent.
To become more sustainable, retail companies need to invest between €140 and €340 billion by 2030 to reduce carbon emissions to zero, produce less waste and create more circular businesses.
The digital transformation requires investments of between 150 and 240 billion euros over a period of eight years. Then the sector could evolve into a “true” omnichannel industry, offering customers a seamless experience, according to the study. The automation of the entire value chain must also be further promoted with investments.
stay agile
“The long-term strategic transformation, what the customers want, remains the same de facto,” said Zierlein. They want to continue shopping in a more convenient, sustainable way, which means that topics like instant delivery, the metaverse, omnichannel and digital shopping experience remain relevant.
Trading companies must therefore continue to invest here. But in the short term, customers want solutions to problems that are pending. Even with limited resources, traders have to react to both short-term and long-term requirements.
“The key word is flexibility,” says Zierlein. All core processes must be flexible so that crises can be reacted to more quickly.