EYE on RETAIL: Five retail predictions for 2023

Online-only brands are in for a reckoning in 2023: Develop a physical presence of some kind or stumble.

The importance of having an omnichannel presence is one of five trends detailed in Forrester’s “Predictions 2023: Retail” report. The report forecasts that in 2023, total U.S. retail sales will hit $4.7 trillion, of which online sales will top $1.1 trillion.

“To succeed, retailers must focus on becoming “future fit” as they position their business model, marketing, stores, and operations to weather and grow through economic issues — not least of which is global inflation — and into the post-pandemic world,” the report states.

In 2023, Forrester predicts the following.

• Retail’s “e-pocalypse” will bankrupt U.S. online-only brands that lack a physical strategy. As consumers revert to pre-pandemic behaviors, the year-over-year change in online retail penetration in 2023 will settle back at 1.5% (down from 3.5% in 2020), meaning that 76% of total US retail sales will still occur offline.   

In 2023, midmarket to enterprise-level pure-play retailers will need to choose one of three options: open physical stores (in the vein of Casper and Warby Parker), develop shop-in-shop locations (e.g., Macy’s/Toys "R" Us) or wholesale partnerships (e.g., Allbirds with Nordstrom and Zalando) — or close their (virtual) doors.

• Retailers will choose one of two supply chain paths: own it or outsource it.  Firms such as American Eagle Outfitters and Gap Inc. now offer supply chain as a service, orchestrating execution of contract manufacturing, transportation, or storage to share capacity with other brands. But some retailers will opt to outsource outright — moving resources, talent, and capital into more customer-facing functions that include marketing, commerce, tech, and CX.

• Automation will be the savior for continued retail labor shortages. Ripple effects from the Great Resignation will force retailers and brands to invest more heavily — and more strategically — in automation in 2023. Investments will automate functions required to run the business both in corporate areas (e.g., marketing, HR, analytics) — and in the store.

• Paid membership programs will boom — but most will be so-so programs that fizzle fast. Taking a page from programs such as Amazon Prime, Costco and Walmart+, we predict that many retailers will channel marketing dollars into a glut of paid membership programs to cultivate recurring customer relationships and more predictable revenue streams. But unless a retailer can clearly articulate to customers why they should sign up for — and then (crucially) stick with — their program, the ROI on that spend will tank.

• Retail media strategies will yield far more conversation for most than actual revenue. The bottom-line impact of retail media dollars will be notable for only a few massive retailers — and remain negligible for most others.

We expect the U.S. market alone to double to $62 billion by 2024, up from $29 billion in 2021. Be clear-eyed about the potential: Amazon alone will account for 69% of the market in 2024 (down only somewhat from 74% in 2021). Retailers should compete for retail media dollars with advertising in their stores that will reach far more customers than their digital properties.

Here is the link to Forrester's predictions hub.

(This article originally appeared on HBSDealer's partner site, ChainStoreAge.com.)