The Future of Retail 2030: Affordability is front and center to consumers
The road to 2030 is paved with uncertain economic markets, fluctuating employment rates, and waning consumer confidence. Retailers need to prioritize affordability to stay relevant, let alone competitive.
Our blog series, Future of Retail 2030, outlines the consumer trends and must-have strategies retailers need to understand to stay competitive as the world evolves. With fast-changing market conditions and consumer preferences, many retailers are struggling to keep up and their risk of falling behind will only increase.
Consumers’ increased focus on affordability
Although consumers always have and always will consider a product’s pricing before purchasing, a volatile market is leading more customers to focus on affordability more than ever. Nielsen’s research into shopper trends revealed nearly 80% of consumers were consciously monitoring their spending in 2021, up from 50% before 2020.
The budget-driven consumer is reacting to several factors.
2020 and 2021 completely changed the concept of a “normal” time. At the beginning of the COVID-19 pandemic, temporary shutdowns of businesses to slow the rate of contagion turned permanent for many. The stall in production resulted in record unemployment. With limited income, price points on necessities are often more important than any other factor. Although the unemployment rate is dropping to pre-pandemic levels, the economy still hasn’t fully recovered.
In fact, some believe the United States is on the brink of a recession. Forbes reported research indicating the U.S. is already in a recession. The indicators noted include low consumer confidence, artificially high gross domestic product (GDP), and artificially low unemployment.
Consumer confidence is how the common consumer reports feelings about the current economy and their outlook on future income and employment. According to the same Forbes article, consumer confidence dropped a whopping 2.3 points from 2020 to 2021. Consumers also contended with 7% inflation in 2021, indicating consumers’ caution with their dollars will compound in the coming years if inflation continues at the same rate.
Recessions can last for years, so retailers need to prepare for long-lasting shaky economic ground as 2030 approaches.
Consumer decisions aren’t made based on the economy. Retailers affect shopper behavior in multiple ways. Considering consumers’ desire for more convenient one-stop shopping, retailers are meeting the challenge by offering more variety in one place. Competition is fierce. To lure shoppers, retailers need to be competitive on selection, inventory, and price in an environment with wary spenders with more options about what to buy and where to buy than ever before.
Cost-conscious consumers aren’t only shopping around at local stores. Even big box stores are facing more competition, with Amazon profit increasing by 220% during the pandemic. The ability to purchase goods from multiple independent sellers at price points lower than domestic retailers from the comfort of home is very appealing to today’s consumer. Although pricing strategies vary, Amazon seller software JungleScout notes 57% of highly successful sellers sell an array of products at less than $30.
Cost-conscious consumers aren’t only shopping around at local stores anymore. In 2030, consumers will have all the online retailers that are available today, and likely more, offering products at competitive prices.
Preparing cost and margin for the future of retail 2030
Retailers cannot silo their functions. End-to-end visibility from all vantage points within the company is no longer a luxury. It is a necessity.
By connecting key planning teams, retailers can have real-time data informing critical decision-makers. For instance, finance and sales can track category performance to identify areas of risk and opportunity. With this information, leaders can set pricing strategy to stay competitive while protecting margin, even when there are market fluctuations or deviations from performance forecasts.
Marketing can create more demand for the products providing the most revenue, and supply chain can toggle inventory levels to reduce surplus stock and markdowns. Supply chain can also work with third parties to ensure manufacturing of the right products is happening in the right areas for the right consumers. Together, retailers can work seamlessly to stay competitively priced, resilient, and agile to overcome snags and seize opportunities when they appear.
With close end-to-end collaboration, retailers can pass any uncovered cost savings along to today’s budget-conscious consumer.
Very few consumers shop without a budget in mind. Retailers have always considered competitive pricing, but with the expansion of online retailers, cheaper and faster ways for shoppers to get their products, and consumers’ need for affordable items, pricing is more complex than ever.
Without the ability to connect key functions throughout the organization, retailers face multiple opportunities to be outpriced. With the future of retail looming, retailers unable to sync pricing with sales, marketing, and supply chain will miss opportunities to maintain or improve margin while staying competitively priced for consumers.
In our final blog in our Future of retail 2030 series, we’ll explain consumers’ expectation for hyper-customization during their shopping experiences. From omnichannel interaction to personalized shopping carts, retailers need to find ways to connect with the consumer to build brand loyalty and repeat sales.