Nearly two years of pandemic unrest has affected virtually every aspect of retail, including how consumers shop, how much they spend, what they spend their money on – and if they can. even find the items they want to buy.
Retailers will need to continue to adapt to changing market conditions and consumer behavior to thrive in the year ahead, industry analysts say.
Consumer spending will continue to grow in 2022, but at a slower pace than this year and 2020, said Brian Yarbrough, retail analyst at financial services firm Edward Jones.
The headwinds contributing to this deceleration, Yarbrough said, include the end of government stimulus funds. In addition, he said, the savings rate has returned to a more normal level of around 8% after peaking last year at around 16%.
These factors can cause consumers to cut back on spending, Yarbrough said. Continued inflation can also dampen consumers’ willingness to spend, he said.
“Inflation is finally starting to float in retail,” Yarbrough said. Consumers have seen it in grocery stores before, but it has only just appeared in hard lines such as appliances and sports equipment, and soft lines such as clothing and bedding, he said. declared.
The new omicron variant of covid-19 is a wildcard for the retail industry, Yarbrough said, as are the child tax credits that end this month, unless Congress renews them for the year next.
Many consumers think of these tax credits as stimulus money, Yarbrough said. “But there might be some disappointment when people go to file their taxes and they receive a lot less than in 2020,” because the checks were actually advances on their annual child tax credit.
On the bright side, Yarbrough said, wages are rising and housing markets are rising. And people still have savings, he said.
Despite some return to in-store shopping this Christmas season, online sales will continue to exceed in-store sales, Yarbrough said. The omicron variant or any new variant that appears could speed that up even more, he said.
GO TO “PRIORITIES”
Carol Spieckerman, Retail Consultant and President of Spieckerman Retail, said 2022 “will mark a shift from possibilities to priorities.”
Retailers previously identified what was possible for them in terms of capacity, Spieckerman said.
“Now, as retailers make acquisitions, forge new partnerships and create internal solutions, there are many options and capabilities available to them,” said Spieckerman. They should therefore focus on identifying priorities and recognize that each retailer’s priorities will be unique.
“There are no more models,” Spieckerman said.
Another change will come as retailers increasingly become investors, she said, especially in startups that provide solutions and services in areas such as healthcare and transportation.
This will mean more assets held for retailers and more competition for established third-party vendors who currently provide them with technology and data services, Spieckerman said.
“A lot of third party vendors like Terra Cycle and thredUp on the sustainability front and a lot of last mile enablers like Instacart have been able to work with competing retailers without a problem,” said Spieckerman. But retailers who invest directly in startups will see a lot of them in exclusive deals or acquire them directly.
“Either way, a torrent of technological innovation will hit retail in 2022,” she said.
Sucharita Kodaly, vice president and senior analyst at Forrester Research, referred to a recent report from the company, which she co-wrote, on the retail forecast for 2022.
The report says retailers will continue to seek out and form new partnerships “to diversify everything from revenue streams to customers and channels.”
For example, store-in-store partnerships, such as Kohl’s with Amazon and Sephora, and Target’s with CVS and Ulta, will become more common, according to the report.
“Partnering with another retailer extends the footprint into often preferred locations… minus the expense of another full store,” the report says. “For the host retailer, this refreshes the assortment, increases overall sales per square foot and reduces financial exposure.”
According to the report, retailers will increasingly embrace the ‘circular economy’ trend, in which clothing and other items are resold or reused.
“Consumers like to buy second-hand products because they are unique and cheaper – and for the sake of finding a good deal or special item,” the report says.
Forrester predicts that by 2022, “investments in companies that facilitate this logistically difficult offer will exceed $ 2 billion.”
Mark Cohen, director of retail studies and assistant professor in the Graduate School of Business at Columbia University, said the pandemic will continue to change retail and consumer behavior throughout the year. future.
Cohen said increases in hospitalizations and deaths from covid-19 variants, especially in areas where many residents resist vaccination and safety protocols, will continue to fuel the shift from retail store visits to online shopping that began long before the pandemic.
But with the end of government support that used to help consumers, such as increased unemployment benefits and possibly the child tax credit, “disposable income will become entirely dependent on wages,” Cohen said.
“As a result, growth in retail trade may become more subdued than it has been recently while at the same time unemployment will continue to be exceptionally low,” he said.
A bright note that Cohen sees, but with a caveat, is that supply chain backlogs will continue to decline and largely disappear by the end of 2022, “in the absence of any further closures at large scale due to covid in the world “.
Overall, Cohen said, “Retailers who manage their assortments, workforce and balance sheets with the realities we have faced and will continue to face will continue to thrive. “
In contrast, “traders who were not in great shape before covid will not do well in 2022 despite the outlook that suggests they are doing well now,” he said.
Cohen cautioned that sales performance in 2021 must be compared to that of 2018 and 2019 to get a true picture of the current situation.
“Comparisons to 2020, a year when closures and disruptions were widespread, are not valid,” he said.