How Will 2023 Influence This Year’s Retail Development?

Originally posted on: Forbes

Sergey Kozhevnikov, VP of Product Development at Teamwork Commerce.

As 2024 settles into its stride, few retailers are hoping for a repeat of 2023. Rapid inflation combined with low consumer confidence played out against a backdrop of geopolitical uncertainty and heralded challenging times for both brick-and-mortar retailers and e-commerce practitioners.

Most will be hoping that 2024 ushers in a new dawn, and that is borne out by Deloitte’s ConsumerSignals research, which shows renewed consumer financial stability, spending intent comparable with 2021 levels and evidence of decreasing retail caution.

However, many of the obstacles the retail industry faces this year will be familiar. Ever-tightening margins and a cut-throat retail environment mean retailers must take full advantage of every competitive edge they can find. As is often the case, technology offers solutions to an increasing number of retail problems.

In this article, I’ll look at three of the biggest challenges affecting retail as the industry wrestles with a new year and an uncertain economic landscape.

The Growth Of ‘Shrink’

Throughout 2023, shrink was a major issue for retailers, and it’s not going away. In May of last year, Target reported that it expected to take a $500m hit to profits in 2023 due to missing inventory.

While shoplifting is a major contributing factor, shrink—a decrease in retailer inventory for reasons other than sales—isn’t only attributable to nefarious customer behavior. Employee theft, administrative errors, vendor fraud and operational loss are all leading causes. Organized theft from stores is a relatively new phenomenon but one that’s reportedly been responsible for store closures in its own right.

Some commentators claim that retailers are using shrink as a catch-all to hide poor strategic decisions and mismanagement. What’s clear is that shrink isn’t a new issue. What’s new is how retailers can approach it.

We’re set to see a shift in the way retailers assess and take preventative measures to counter shrink over the coming years. Reducing loss will be a key focus of retailers in 2024, but beyond CCTV, increased security, frequent stock checks and other traditional methods, technology provides another answer to this issue.

RFID product tagging, for example, has become commonplace over the past decade, and where it has been adopted, it’s working for retailers. Accenture’s RFID in Retail study found that 80% of retailers felt that RFID offered benefits that couldn’t be substituted by any other technology. Because RFID offers end-to-end inventory tracking, retailers can better pinpoint where losses are occurring, and take action to recover losses. It can benefit customers, too, as an RFID-powered self-checkout system can offer near-instantaneous item scanning and payment.

The Problem With AI

The specter of increasingly AI-powered customer experiences has been much discussed over the past 12 to 18 months. In retail, as with virtually every other industry, AI has been mooted as a silver bullet for all ills. In reality, while AI is well-suited to a large number of tasks, it currently lacks the critical thinking and empathy of an experienced human customer service representative.

That said, AI chatbots and voice bots can offer a way to query triage, directing complex questions directly to a human but keeping mundane, repetitive tasks away from already taxed CS teams.

Those repetitive, hygiene tasks such as order tracking, returns, refunds and basic FAQs are a time-sap to human team members but are bread and butter to an AI-powered chatbot assistant. As with all AI solutions, however, there is one major potential flaw: If your data is incorrect, corrupt or incomplete, AI can make a drama out of a crisis. An unsatisfactory customer service experience is one thing, but an ill-informed AI team member could potentially deal considerable reputational damage if allowed to communicate with customers unchecked.

Any AI solution needs the eyes of an experienced customer service employee to ensure the worst doesn’t happen. Equally, even if the solution is providing first-class service, it always pays to have the experienced eyes of a veteran customer service representative on hand to fine-tune direct-to-customer responses.

Hybrid Customer Experiences

Where e-commerce was once believed to be the cause of the end of in-store shopping, it’s fair to say that hasn’t played out as many imagined. In reality, online shopping is making bricks and mortar stores a central piece in the omnichannel shopping puzzle. The result? A clicks-to-bricks shopping culture, where buyers choose a variety of different routes to retail fulfillment. Yes, the journey may often begin online, but delivery isn’t always completed by a third-party courier.

In fact, many retailers are finding that fulfillment from stores is a more profitable option than the complex and costly process of last-mile distribution. With this realization has come a revolution in the way brick-and-mortar stores fulfill orders and a new era in customer service expectations. Far from wanting a wholly online experience, many customers prefer to buy online, pick up in store (BOPIS) and buy online, return in store (BORIS), giving them a human connection with a brand, even if the initial browsing and purchase are done online.

Making this a seamless experience is a key part of the customer journey. While more profitable for retailers, if it doesn’t work for consumers, this in-store trend will be a short-lived renaissance.

Paying Dividends

As with all technology solutions, first-mover advantage is a powerful incentive, but organizational change and board-level buy-in remain a barrier to entry for technologies like RFID and AI. Equally, the cost of implementation is often a blocker to widespread adoption.

While bottom-line impact may be the primary concern for C-suite executives, offering a customer-first approach to the retail experience will undoubtedly pay dividends in both senses of the word.