As retailers and consumers scurry through rising inflation, research suggests rising costs will plague 2023 retail sales with inflation adding almost GBP260bn (US$316bn) across international markets.

The Ecommerce Delivery Benchmark Report 2023, commissioned in partnership with economics consultancy Retail Economics, found that 80% of retailers were planning to increase the price of products, with 40% suggesting rising costs will be the biggest challenge this year.

Additionally, the research highlights that in the UK, non-food retail sales are forecasted to hit GBP249bn in 2023 – an increase of 2.6% in value terms.

UK retail sales volumes are set to fall 4.9% in 2023 compared to last year. This underlines the fact that shoppers are simply having to spend more to get less for their money with retail inflation expected to hit 7.5% over the year ahead.

However, the British Retail Consortium (BRC) recently reported an increase in total UK footfall, which increased by 12.5% in January (YoY). This was 2.6 percentage points worse than December but better than the three-month average increase of 10.3%.

Some key trends from the Ecommerce Delivery Benchmark report

·        Cost pressures and shifting shopping habits: Retail brands are facing rising input and operating costs and with margins under so much pressure, it’s likely that some of these costs are being passed on to consumers, especially as merchants look for ways to find savings and preserve margins. As a result, 74% of UK consumers plan to change their buying behaviours and cut back on spending to adapt with recession.

·        Non-food retail sales forecast and inflation impact: Many retailers remain optimistic about trading prospects in 2023, with more businesses holding a positive rather than negative view regarding the economy, and only 20% anticipating weaker consumer demand over the year ahead.
Consumer sentiment and economic projections are generally at odds with retailers’ expectations for the year ahead. Of those small enterprise retailers surveyed, 80% expect order volumes to be the same or higher (59%) in 2023, with a third anticipating order volumes to be 10% higher or more.

·        Delivery priorities – Cost over Convenience: The research reveals that in 2023, the cost of delivery is expected to be the most important conversion factor impacting retailers. But operating cost pressures facing businesses may make this a difficult challenge. Over a quarter of retail businesses plan to increase the cost of delivery for their customers, while only 18% say they won’t increase the price of products, delivery, or returns this year.

·        Sustainability and second-hand: Sustainability continues to be top of mind for many shoppers, with 79% stating they would consider green delivery options when ordering online. Consumer perceptions around ‘second hand’ are also changing and retailers are responding to growing demand from consumers for economical and sustainable alternatives to buying brand new. Over a quarter of consumers plan to buy second-hand or use online resale marketplaces more often in the year ahead.

·        Category and channel shifts: The research points out that 61% consumers still plan to tighten or cut discretionary spending over the year ahead, with 35% planning a switch to cheaper brands when it comes to buying clothes. As shoppers look for value, they may become more channel agnostic, regularly switching between physical and online to find the best deals. This could serve to accelerate the shift to a hybrid retail future that merges the best of physical and digital.

Richard Lim, CEO of Retail Economics, says: “Retailers will continue to face a toxic mix of pressures this year as rising input and operating costs collide against a backdrop of weaker consumer demand, rising interest rates and shifting consumer behaviours.

“These conditions favour those retailers who have strong balance sheets, invest heavily in price, leverage data to target their most valued customers and win new ones, while efficiently utilising stores to provide a truly omnichannel proposition. Those that carry high levels of debt, have weak pricing power and sit in the middle of the market could find life very difficult.”

Benoit Soucaret, chief experience officer of experience & commerce at Merkle UK, further added: “Transparency is the ultimate currency for loyalty now as consumers are a lot more selective with what they spend their money on. Retailers need to be honest with their customers about price rises and offer alternatives such as discounts and useful loyalty programmes.

“Non-essential retailers have fewer opportunities to stand out and leave a long-lasting positive impression with consumers, and it’s crucial that audiences are put first amid tougher times. Right now, retailers that play the long game will ultimately have the best chance at success.”

By Just Style