Customer behaviour and economic headwinds reshaping retail

Soon after the pandemic made its way around the world in 2020, people started talking about the “new normal.” Three years later, the world is still grappling with how to define a post-pandemic life, states the Retail TouchPoints 2023 Customer Loyalty and Personalization Benchmark Report in partnership with Mastercard Data & Services.

The global retail industry has been dealing with one of the most uncertain and evolving moments in recent history. While many of the retail trends being witnessed in 2023 have been around, they will take new “twists and turns” dictated by an ever-evolving consumer and the economy.

For instance, inflation is impacting household budgets, but consumers are still fulfilling their pent-up demand for travel and experiences. Choice is key but consumers don’t want to be overwhelmed by messaging and offers, increasing the expectation for personalisation. At the same time, privacy is more important than ever, and people want brands to understand them. Meanwhile, services such as curbside pick-up and other conveniences borne from the pandemic are here to stay, even as customers want new experiences.

While 2023 started with fewest restrictions since 2020, there is more economic uncertainty. Consumers are expecting choices in how, when and where they shop. And retailers that anticipate customer needs and pivot to meet or exceed those needs will see the strongest results. That’s why it’s crucial to understand economic triggers (such as layoffs, rising gas prices) and consumer reaction (less discretionary spending), as well as other macro-influencers on consumer spending such as weather and COVID. According to the Mastercard Economics Institute’s 2023 Economic Outlook, the impact of inflation, interest rates and consumer spending will be felt differently around the world based on factors such fiscal policies and income levels.

For example, the gap in discretionary spending between high- and low-income households remain wide. Although inflation is expected to soften in 2023, prices are broadly going to remain higher relative to where they were before the pandemic. As a result, the effect from less inflation could mean that discretionary spending by lower-income households catches up closer to discretionary spending by higher-income households. However, the risks remain wide. Labour market trepidations could be a headwind in 2023 despite inflation cooling off.

Overall, 2023 is a year to watch in retail as inflation and consumer pent-up demand create unusual dynamics. For retailers, the year will mean different approaches to understanding consumers, reaching them in new ways, personalising their experiences and earning their loyalty. New and different ways to create an in-store and digital experience will also go through an evolution.

5 key trends reshaping retail (as per findings from the Retail TouchPoints 2023 Customer Loyalty and Personalization Benchmark Report)

• Inflation is taking a toll on customer loyalty efforts: More than one-third (37%) of retailers say losing customers due to price hikes is a significant customer loyalty challenge.
• COVID “hangovers” are making customer loyalty more elusive: 43% of retailers identified out-of-stocks caused by supply chain woes and labour shortages as top challenges.
• Among retailers that showcase their ESG commitments to promote customer loyalty, more than half (53%) tout the recycled or recyclable nature of their products and 52% trumpet their environmental sustainability.
• More than one in four (27%) retailers are using generative AI solutions in their customer loyalty toolkit, with another 13% planning to adopt them in 2024.
• Nearly one in five (18%) retailers are using metaverse stores as a customer acquisition tool.

Download the “Retail Touchpoints: 2023 Customer Loyalty and Personalization Benchmark Report” to learn how inflation is impacting acquisition and retention in retail today, and how companies are responding or view “Mastercard’s EMEA Retail Trends 2023 webinar” with the latest insights from Mastercard Economic Institute on how the economy and consumers will continue to shape the retail industry.

RetailME Bureau