Retailers are conducting business this year with an optimistic eye on future-proofing their business as they navigate a rising sea of mixed market signals.
Tight consumer budgets amid flooding inflation and floating inventory suggest strategies that push tempered optimism amid two predicted top risks to retailers: falling behind on technology and steering clear of economic volatility.
To manage both those warning signs more effectively, chief financial officers are investing in technology to scope out more precise insights, and better navigate the market swings that lie ahead.
Two key broad-based conclusions cited in the recently released 2023 BDO Retail CFO Outlook Survey show that retailers remain concerned about market conditions and the inevitability of runaway increased prices. Those concerns remain driven by high-interest rates and overstocked inventory.
As a result, the report indicates a trend in which retail CFOs are moving out of reactive mode into a strategic, proactive position. From a technology viewpoint, CFOs are focusing on leveraging customer analytics to drive more accurate marketing decisions.
“We saw that half of the respondents believe that they have adopted technology correctly and are sort of ahead of their peers,” Robert Brown of BDO Digital, told the E-Commerce Times. Brown is BDO’s National Digital Leader for Retail & Consumer Products.
Retail Report Review
Key trends in the 2023 Retail CFO Outlook Survey include:
- 58% plan to use customer data analytics to predict better and manage customer demand to make inventory decisions
- 57% plan to use customer data analytics to make real-time recommendations to customers
- 54% plan to use data analytics to promote interconnectivity via loyalty apps and in-store and online shopping experience
Specialty retailers are leading the transition to digital transformation, and investing in supply chain technology is the primary tactic for insulating the business against disruptions.
An indicator of toned-down retail expectations is the number of retailers planning to restructure: 33% compared to 26% in the previous year. To maintain resiliency, retailers are focused on reducing their excess inventory — a significant issue that impacted their bottom lines in 2022 — and adjusting the cost structure of SKUs to create liquidity ahead of a potential recession in 2023.
Attitudinal Changes Happening
A fundamental notion about the role of technology this year is that it is critical to invest in the areas that are e-commerce and digital marketing based, noted Brown. He estimates that a quarter of the surveyed retailers will make selective outlays in technologies as active investments to improve their retail model.
Still, other retailers are content to sit on the fence, waiting to see what happens. That largely is driven by the health of their business, their cash flow, or the overall operating environment in terms of where their business has been, he offered.
Brown noted that those who are making the technology investment commitment are being very creative in how they pay for the purchases.
“They recognize the necessity to continue to invest in the business because if they don’t, they will be replaced by the people who do,” he said.
Customer Analytics in Retail Sales Q&A
The E-Commerce Times asked Brown to discuss how customer analytics can play a pivotal role in retail sales this year.
E-Commerce Times: What was your most interesting takeaway from this year’s BDO retail report?
Robert Brown: Those integrated retailers recognize that they are not just investing in the front end of the business, a savvy website, establishing a savvy storefront, or a mobile-enabled storefront. They are connecting that to their supply chain strategy.
It was interesting that many of the highfliers, or the people that have made those front-end investments to create those sorts of digital strategies, have already pursued connecting their supply chain.
Why is that investment strategy so critical?
Brown: It says that they have an active strategy which meant really, “I’ve already executed on the strategy knowing that my supply chain and my storefront and connecting the physical store and the inventory of the physical store and my distribution centers, my DCS, and entire ecosystem are connected at scale.”
They get reduced costs and a greater understanding of what their customers are doing to better manage their supply chain.
What does this year’s report say about retail’s return to normalcy?
Brown: This is a bit nuanced from last year, where we saw a slightly different environment. We did not see as many headwinds.
What we saw was more of the Covid overhang where people were really buying online. A lot more holiday sales were online last year, and we saw retail sales increase online overall in the marketplace.
So, retail-wise, would you say retail is returning to normalcy?
Brown: We see a shift, but I would not say return to normalcy. It returned to what was becoming the new normal. By that, I mean it is an online focus with in-store, which is really the new Omni 2.0 as the business model. Many retailers are embracing this going forward.
Is this new online and in-store integration becoming the new retail survival plan?
Brown: The answer is yes. I think there is the notion that it is not so much of a survival plan, but it is a requirement plan to be the retailer. Going forward, you must do these types of things.
If retailers must now make these technology investments, doesn’t that add to the budget-balancing act?
Brown: It is essential to understand that many of these investments retailers have made are not giant, multi-million-dollar requirements to get into the technology you need to operate the business better.
We see a dramatic surge in the move to third-party platforms because they can be spun up, customized, connected, and integrated very quickly.
Versus just saying, well, let’s go build our own e-commerce storefront. Let’s build our own shopping cart. Let’s build our own checkouts. All these things are in terms of PII data, PCI DSS transactions, secure transactions in terms of financial data, and credit card information laws being passed.
So, the run-up to customer analytics is not an excessive financial burden?
Brown: Much of the new investments being made are on top of the third-party retail platforms — Shopify, Shopify Plus, Magento, Adobe, and the big commerce platforms. Now they are integrating all these collective systems with the flip of a switch.
Retailers can spin up and integrate to the degree that they want without massive time and cost investments. They can respond very quickly, efficiently, and effectively at a very low cost.
How much can adding customer analytics impact sales?
Brown: Realizing that is one of the biggest takeaways from this year’s survey results. The idea of using customer analytics is that you need to know customers better. Why? Because there are many pure-play online specialty retailers. Most of their transactions are generated through a digital interface. They have a greater understanding and, therefore, greater control of what they do and how they do it with how they respond to the needs of their customers. We all, as consumers, expect it.
We are seeing a big movement in shopper and customer data. It prevents the alternative approach where retailers load up on inventory blindly and then must deep discount much of that inventory still sitting on the shelves untouched. All this plays into knowing how to respond to consumer needs by being a better retailer.