By DeAnn Campbell, Armstrong Alliance Group
For Brands and Retailers, the only thing tougher to navigate than a recession is the fear of one. It’s far easier to make decisions on hiring, product sourcing or tech investments when you have clarity on the state of the economy — even if that state is grim. But 2023’s economic indicators are sending mixed messages that make clear decisions challenging for even the best C-Suites. In 2022 the U.S. hit its lowest unemployment rate since 1969 and retail sales surpassed even pre-Covid spending levels. Yet we also experienced two consecutive quarters of negative GDP growth, long considered to be a strong recession indicator, and inflation neared a peak not seen since the 1980s. Even economists are divided on what’s in store for 2023.
This extreme uncertainty paired with current political and environmental challenges means that Brands and Retailers will need to be even more cautious in where they choose to invest their precious resources. Companies should focus on solutions that can deliver on three key attributes to stand the best chance of navigating a precarious 2023 and beyond.
Shorter Payback Windows
In retail it’s necessary to make long term investments in your business, with payback windows structured out over multiple years. One example is how retailers approach customer loyalty. Most companies are crystal clear on the value of repeat business to their bottom line. The average loyal customer will spend 67% more in year three of their relationship with a retailer than in the first six months. Things like self-checkout, interactive apps, inventory tracking and store upgrades have become table stakes for retaining customers, yet these investments are expensive and take time to recoup.
Example: the payback period for setting up a new retail micro-fulfillment center can typically average between two and three years, depending on location and products. The benefits of micro-fulfillment to optimize labor and reduce shipping costs are clear – and delivery speed and consistency are a top factor in long term customer retention – but will those benefits matter should consumer spending plunge in the next one or two years? But on the other hand not making this investment now could undermine profit margins and lose customers sufficiently to damage a company permanently.
The solution is to find ways to achieve the benefits in a way that will shorten the payback window. Ulta’s partnership with Target gave Ulta instant access to Target’s substantial network of online and offline fulfillment solutions, but with minimal capital spend up front reducing the payback period to months instead of years.
Boost to Both Top and Bottom Line Revenue
Investments in new tech, new hires or new stores usually involve a detailed analysis of benefits and their expected payback, either in increased revenue or in cost savings. But in times of extreme uncertainty, or potentially riding out a recession, it’s important to ensure any investments made will offer clear benefits to both top and bottom line revenue to shorten payback window, increase flexibility and spread benefits over more parts of the business.
Example: Brands and Retailers are actively exploring the benefits of in-store digital media for potential revenue and a source for 1st party data. Momentum is slowly growing to use the physical store as an advertising medium. Retailers like Walmart are taking notice after seeing nearly double the number of shoppers visit their stores vs online in 2022. The benefits to top line revenue from digital screens are clear. Screen vendor Cooler Screens has data showing sales increases of 50-100 percent over stores without screens, and products shown in ads sold two to ten times more than non-advertised products. But to truly position this investment for success through uncertain times it’s necessary to include bottom line benefits such as cost savings or operational efficiencies. Can the screens occasionally be used for way-finding or digital experiences? Can a percentage of the screen time be dedicated to internal promotions or brand messaging? Can the screens be paired with electronic shelf labeling or inventory tracking to increase bottom line efficiencies and shorten payback windows?
Contributes to Blending Online and Offline Channels
Like it or not consumers have become adept at jumping between online and offline channels throughout their path to purchase. At the same time some of those channels have become unreliable in response to current events. Facebook/Meta is having a bad year with the loss of over 1.4M users and Twitter has lost over 1M users since Musk’s takeover. Meanwhile U.S. States have begun banning TikTok use on government owned devices, and a nation-wide ban is being considered due to foreign ownership concerns around data privacy. Brands and Retailers are facing difficult marketing choices. Consumers still clearly desire brick and mortar for at least some of their buying journey, and they also want new online trends as they emerge. Blending online and offline is rapidly becoming essential to keep up with shopper behavior and mitigate risk should channels fail or new ones emerge.
Example: In 2020 Canadian Tire partnered with a company called Synq Technologies to leverage digital tools inside of their brick and mortar stores, allowing the shopper to simultaneously purchase online and in-store products and to pick and choose which items to carry out from the store and/or which to have delivered. Technologies and experiential tools that bring digital behaviors into physical stores, and better connect physical stores to e-commerce, such as returns drop-off, in-store pick-up, and mobile apps will help Retailers serve and connect with customers regardless of where or how, and to de-risk marketing investments.
Screening to ensure future new programs meet these three attributes will help companies justify spending to investors and prevent long term overhead from dragging down profits should recession, war, pandemic, or other uncontrollable event make sudden changes necessary. Brands and Retailers need to choose solutions that support their path to long term profitability but won’t weigh them down when new events force quick pivots. This is the tightrope walk that 2023 will bring.
(Check out how integration using DMM data can help retailers innovate to overcome related challenges)
Retail Strategy & Insights, Armstrong Alliance Group
is a 20 year veteran in retail strategy. Voted a Top Global Retail Influencer, she serves on the Total Retail Advisory Council, the Shop! Technology and In-Store Experience Committee and the Retail Wire Braintrust. She currently leads Retail Strategy for the Armstrong Alliance Group, a Strategy and Marketing-as-a-Service company helping businesses align tech solutions with retailers’ operational and customer needs. Contact DeAnn at firstname.lastname@example.org.