NRF Wrap-Up + Predictions for 2023
After the last couple of years of COVID restrictions, we were happy to be back in New York last week for the 2023 NRF Big Show. For those unaware, the NRF Big Show is the world’s largest annual retail event, bringing together over 35,000 retail professionals, including 950 vendors and 100 sessions from more than 90 countries.
We braved the freezing cold New York winter over a 3-day period, having the opportunity to listen to and speak with a range of both retail industry leaders and vendors here in the US. So, having now seen the latest trends, innovations, and strategies for transformation – what do we see as the key themes impacting retailers here in Australia for 2023?
Recession? Soft-landing? The outlook for ‘23 might be something in between?
Are we currently in a recession? Are we heading into a recession? Or should expect more of a ‘soft landing’ for ‘23? After 3 days we’ve heard a range of varying responses from retailers, and to be honest we’re none the wiser. But one theme is clear, all are approaching the coming year with a degree of caution.
Liz Ann Sonders, chief investment strategist with Charles Schwab, summarised it best. Firstly, we’re not in a post-COVID world yet. And she believes we’re already experiencing a recession, albeit a unique form of one.
What we’re currently experiencing is a rolling recession. That is, as we continue into ’23 expect prolonged pockets of weakness in the economy / retail sectors, particularly when it comes to housing, tech and goods. Whereas we should expect continual growth in others over the next few years, namely services.
In summary, expect weakness to roll through certain sectors of the economy and slower overall growth. “Whether it’s ultimately declared an official recession is now purely academic”. Labour shortages (more on this a little later), inflation, de-globalisation and digitalisation will be major issues continuing to face all retailers over the coming years.
Retailers are getting back to basics in ’23, and bricks and mortar retail is making a comeback.
We saw the latest in technology around shelf-picking, AI, holograms, robotics and cloud services; yet if we had to pick one reoccurring theme from brands across the 3 days it was a getting ‘back to basics’ approach to retail. CEO of Neighborhood Good’s, Matt Alexander, summed it up as “You can have all the tech in the world, but it doesn’t mean anything unless the underlying offer to consumers is there. It comes down to the basics”.
Additionally, online might be growing, but multiple retailers discussed the growing importance of physical stores, particularly as they relate to building relationships and offering experiences to consumers. CEO of Lowe’s, Marvin Ellison, summarised the physical competitive advantage of bricks and mortar as, “There’s two questions every retailer needs to ask. Do you have a strong physical store network? Can they be connected digitally? Customer’s want either less than 1 hour delivery or 1-on-1 in-store service… and it’s very hard to do either without a proper physical store network”.
To take the words LL Cool J and bastardise it. Don’t call it a comeback, physical retail has been (and will continue to be) here for years.
Staffing, or getting the right skills in the right areas, is expected to remain a significant challenge throughout ’23.
Another reoccurring theme throughout the 3 days? The challenging labour markets. And the bad news is that the battle to attract and maintain talent is here for a bit longer.
We heard from Steven Williams, CEO of PepsiCo Foods North American, about the range of initiatives and incentives Pepsi is offering to employees in a bid to combat the continual tightening of the labour market. “When it comes to benefits staff are looking for, job flexibility is the new currency”.
We also heard an amazing talk from leaders within the fast-food industry including Dominos, White Castle and Inspire Brands (who have such brands as Arby’s, Baskin-Robbins and Dunkin’ Donuts). They recognised that the biggest challenge of ’23 will be staffing, particularly considering the growth of omnichannel and the new 24-hour economy. They talked about using tech as a tool to redeploy staff within the business, and the cultural shift from being known as F&B companies to players within the tech space. Travis Freeman, Head of Media at Inspire Brands, said of shifting the culture within the F&B industry, “If the F&B industry wants to attract the best in tech, it needs to create a culture of benefits and flexibility to compete with the likes of Google and Uber”.
The next evolution of ‘experiential’ retail within stores will be the push towards ‘localised experiences’. And the customer ‘experience’ starts before they enter.
Given the importance of bricks and mortar going into ’23, what’s the ‘blueprint’ for physical store success? There was much talk this year around the next evolution of experiential. Experiential in-store retail isn’t anything new, that is retailers rethinking shopping as must see-content and one-of-a-kind experiences. And it’s a term that’s been thrown around for years. However, many have now begun to recognise that it’s no longer enough to simply create one off in-store experiences. There’s the need to engage the customer digitally before they come into store, and then create unique experiences across each individual store and community.
Amanda Raposo, Chief Experience Officer of CAMP, one of the leading toy retailers in the US, talked how the retailer was approaching this new way of thinking around experiential. “You need to give people a reason to get out of the house. People are using their free time to come into stores, so you better make it exciting. We engage with guests before they enter the store through digital content and create an in-store experience you can’t get elsewhere, unique to each one of our separate stores. Guests can then choose to purchase products to continue that experience when they’ve left stores and returned home”. You need to think broader than just a singular ‘experience’, tailor the experience at an individual store level.
How does this in-store experiential translate online (or how do we create digital flagship experiences)?
Recognising the importance of bricks and mortar, how does this experience translate to digital? We heard from the LEGO group on the retailer’s omnichannel strategy and converting their amazing in-store physical experience within flagship stores into a digital world. How do you offer a memorable experience without physically seeing and touching product?
Martin Urrutia Islas, Global Head of Retail Experience at LEGO, said of the strategy “People don’t remember the last experience they had at an online store, but they do in-store”. He talked about the need for experimenting within the digital space, in-particular taking a lot of the learnings from COVID store closures which the company have kept for good. For example, live streaming events and classes, as well as building communities online by allowing consumers to submit their own product ideas to LEGO for consideration.
Expect ’23 as the year retailers will continue to test and learn when it comes to creating ‘experiential flagship’ digital experiences that complement in-store.
Could resale and preowned hold the key to increasing in-store foot traffic?
Resale and preowned was another huge reoccurring theme throughout the conference. Many retailers we heard or spoke to recognised the growing consumer demand for resale and preowned options. We heard from brands such as Saks OFF 5th, Fashionphile and LePrix in their exploration into the category in ’23 and beyond, as well as a sneak peek into the new circular economy store within a store concept from Ikea.
Resale as a category is expected to grow from $30b USD to $218b USD by 2026. That’s x7 growth across a 3 year period. And the customer is older than you think. Current research suggests equal representation across both older and younger generations. Additionally, the customer demand for resale / preowned will impact all retail categories, we’re talking everything from fashion through to furniture. And whilst price and sustainability are obvious consumer drivers, the main driver was that consumers enjoyed the ‘treasure hunt’ element that resale / preowned offered.
’23 may be the beginning of a revolutionary time for resale and preowned, with many retailers recognising that it may be an important key to increasing in-store foot traffic. It’s now not a question of will retailers provide second-hand options to consumers, it’s a question of when.
Machine learning and AI are in for ‘23. Crypto, Metaverse and Web 3.0 / the new internet are out (or at least most brands are still trying to figure out what the hell to do with it).
The new buzzwords for ’23? Machine learning and AI. That is, a predictive approach to analytics, opposed to a reactive one. Sure, there was also the usual talk around sustainability and diversity, which seemed more empty words and an opportunity for brands to pat themselves on the back (including one of the most cringeworthy panels we’ve ever sat through with Target CEO Brian Cornell). But we seldom witnessed a talk where either machine learning or AI weren’t mentioned. These were the leading buzzwords throughout the conference, and it often felt like a case of ‘tech for tech’s sake’ (it’s important to note that although we recognise the importance of data and analytics, we don’t know of a single predictive model that predicted the impact of COVID).
But perhaps what was just as important, was what wasn’t said. There was little mention or discussion around ‘blockchain’, the ‘metaverse’ and ‘Web 3.0’ (or the ‘new’ internet). And of those brands that did mention, reading between the lines it was obvious to us that many were struggling to work out how to use this new tech to add real value to customers.
Global Head of Client Solutions at Reddit, Neal Hubman, said that retailers were still trying to understand this new technology. “You don’t need to understand the technology behind it, rather understand the shift in consumer mindset. It’s simply about the ability for digital ownership, a decentralised model of the internet and giving consumers greater control over their privacy”. He went onto say that “2023 will be the year of retailers figuring out Web 3.0. The consumer doesn’t care about the jargon, so speak to them like a human”.
Our final thoughts going into ‘23…
Coming into ’23, firstly we need to stop thinking of this as the post-COVID world. There’s still a significant amount of uncertainty and change facing retailers. CEO of Kroger, Rodney McMullen, said it best. “COVID accelerated 3 years of growth into about 3 weeks. This accelerated rate of change is not yet over. We’re still seeing our customer change daily”. Tech and data are still as importance as ever, but expect to see it used as a means to an end. We expect ’23 as the year of retailers getting back-to-basics, by focusing on the core customer value proposition and how they can better connect to customers.
