Evolution or REvolution — what can retailers expect in the next 3 years?

Retailers will invest to capture fresh revenue streams, including in broader ecosystems. Equally, businesses will continue to pursue process excellence, while enhancing their operations through innovative technology and the development of talent.

The GfK survey, involving nearly 800 retail executives in 76 countries, highlights fascinating developments in what matters most to three types of retailer in 2023: omnichannel, pure play online retailers, and offline stores. It also draws out key trends they expect to see dominate the retail space in the coming years.

Omnichannel will remain the most successful post-pandemic format, retailers predict. And they anticipate significant growth in mobile commerce, as well as marketplaces, click and collect services, and sophisticated store experiences. 

At the same time, the various retail categories are quickly merging. Classic online businesses are acquiring properties for in-store experiences, and traditional shops are attempting to fully launch their offerings on the web and on mobile. Identifying and unlocking new revenue streams within these formats will be equally critical, necessitating imaginative use of digital and instore space.

Most retail players are setting new priorities around operational excellence. These are increasingly underpinned by smart investments in essential workforces. Spending on relevant intelligent technologies will also be key, even if some will deliver results in a longer timeframe. Meanwhile, in several large markets, broader business purpose is becoming a differentiator in winning and retaining consumer interest.

This report examines the current evolutions, and even revolutions, being driven by retailers globally. It looks at how those businesses are adapting to meet the challenges and opportunities ahead. GfK’s companion regional reports analyze specific localized trends: in Europe, Asia-Pacific, Central and South America, and the Middle East and Africa.

Consumer tech retailers worldwide are seeking to harness and maximize the opportunities ahead. They aim to build and safeguard profitability, while attracting and retaining a wide range of customers. To do so, they must consider each of the four key, interlinked areas of change, acting with focus and determination. 

Only by understanding what will matter most in the coming years can retailers make the necessary choices to be ready for the future. 

Nearly two-thirds of retailers expect shopping experience stores to be a successful format,given their ability to deliver more distinct encounters, often in local environments. This is comparable to the confidence around online marketplaces. 

Meanwhile, relatively simple services such as buy online and pick up in store — or click and collect — are expected to remain popular. This is down to the speed and convenience offered to consumers, the simplification of return processes, and the removal of the need to be at home for deliveries. Strong growth is expected in this format, particularly in Latin America where home delivery options can be lengthy and expensive.

In recent years, social commerce has also been in the crosshairs of many tech brands, given its potential to engage consumers, build experiences and clinch timely sales. Among retailers, however, only just over half currently see it as important for the near-term. 

The fastest social commerce growth is expected in Asia-Pacific, where consumers are generally more accustomed to buying directly through social media apps and often view them as a reliable source of discounted deals. 

While notable growth is expected in social commerce, it continues to lag expectations in many other markets. This is attributable to many businesses perceiving its main benefit as brand building, rather than an e-commerce opportunity. We expect this to change over the coming years.

Retailers know that amid tough economic conditions — and changing dynamics in their relationships with manufacturers — any format innovation must also include the generation of new revenue streams. Such models can help bring in new customers, while building loyalty. 

Retailers are considering making several important technological changes to position for growth. 

These will be critical in supporting the new formats and revenue streams being counted on for increased revenues. They will also enable the other pillars examined in this report: operational excellence and purpose-based activities.  

Nevertheless, GfK’s survey indicates that many retailers are not fully committed to a range of important technologies. For some, compared to the clear commitments they are making around formats and operational excellence, there is a hesitancy around tech investments. This could result in them being left behind by more ambitious and focused competitors, or those with larger resources to experiment.

The strongest example of such hesitancy — among some retailers — is in artificial intelligence and machine learning (AI and ML). It is the area in which retailers consider there will be the greatest potential, with over six in 10 citing the technologies as more important than other innovations. And while it is the top focus of tech investment, on average there is only a moderate strategic focus in this area. This is instark contrast with retailers’ consistent levels of enthusiasm around formats such as omnichannel and mobile, or around operational aspects such as delivery.

“Any hesitancy around spending on AI and ML may be attributable to the current sophistication levels when it comes to harnessing data — and the expected payback times for the investment involved,” explains Vishal Bali, global VP of customer success management at GfK. “For some of the initiatives, there can be fairly long timescales required to achieve a return on investment — even though the results can be game-changing.” 

The need for change here is growing, particularly when it comes to intelligent insights. A new Forrester Consulting report, commissioned by NIQ, shows that 52% of businesses still find it hard to respond quickly to shifting market demands.² Typically, such organizations are grappling with over six different data sources. “The answer is omnichannel intelligence, meaning truly actionable cross-channel insights. It is enabling the most advanced businesses to begin developing more relevant consumer strategies, and drive highly personalized experiences and customer satisfaction,” says Jamie Clarke, head of North America retail at NIQ. 

Among the firms clearly stepping ahead with their use of intelligent technologies are pure play online retailers, which within the GfK survey showed the broadest confidence in their ability to successfully deploy AI and ML. This is perhaps because online-only businesses are most reliant on tighter processes, rapid strategic adaptability, and users being able to quickly find items they want from a wide array of choices. They also have the data needed to develop AI and ML models. 

While not all the use cases of intelligent technologies have convinced retailers, those making advances have clear priorities. Interestingly, the survey reveals that retailers are focusing on demand forecasting, and also personalization for consumers.

“Predictive insights are being targeted by most forms of retailer involved in AI, but particularly by omnichannel players,” explains Bali.  “The overall macroeconomic environment — including supply chain and cost pressures — mean an even greater need for quality insights.”

Forward-thinking pricing strategies are a major area of AI, too, particularly for omnichannel retailers pitted against multiple strong competitors. At the same time, retailers see product discovery and personalization as realms within which the smart use of AI could strongly improve performance. “Retailers are highly cognizant of the need to personalize shopper experience and drive stickiness,” Bali says. “AI provides a great opportunity to enhance shopper experience as well as protect margins and grow the competitive edge.” 

Retailers’ investments in AI and ML will underpin developments across all the pillars of change. Within formats, these technologies will enable increasingly personalized experiences, while empowering actionable cross-channel insights for RMNs. In operations, intelligent technologies will support sharper analysis and better forecasting around delivery and supply, while enabling smart dynamic pricing and warehouse automation. In purpose, AI and ML will have an impact by enabling better tracking of products, plus faster and more regular reporting, and by delivering deeper insights into sustainable store sales and resource usage.

Other technologies are currently perceived by most retailers as having somewhat less significance — though we expect they too will gain importance in supporting all the pillars. 

Globally, only a third of tech retailers plan to invest in augmented or virtual reality. AR and VR have well documented benefits in improving brand and shop experience, and allowing consumers to have immersive product tryouts, assistance and improved store navigation. So far, the technologies are generally more favored by retailers with a bricks and mortar presence, where engaging live experiences could be offered as a memorable differentiator. We expect a wider take-up initially by fashion and luxury brand retailers, given the impact of AR and VR on product tryouts and highly visual in-store marketing. Consumer tech retailers will likely follow suit over time.

Blockchain, is also currently being pursued by the same proportion of retailers. This is despite it being able to assist in multiple essential areas including fraud prevention, improving supply tracking, and logging products’ provenance and sustainability throughout supply chains. Retailers will need to overcome their knowledge gaps to achieve important progress here.

A third of stores are also considering robotics. These can firstly transform background processes not seen by consumers. The high costs and warehouse-centric benefits mean they tend to be the domain of primarily online operators. Nine in 10 of the retailers investing in robotics will do so for the key operational areas of warehouse automation, and six in 10 for inventory checks. European retailers are among those most likely to pursue robotics, given the region’s growing labor costs.

The proportion of online stores set to invest in robotics is double that of offline players. Yet in-store, the technology could also have a useful customer-facing role, aiding new memorable experience stores. “In the long run, humanoid robots could provide valuable in-store services as consumers accustom to their presence in different parts of life,” says Bali. “Robots could ultimately enhance and add to the customer experience and raise the bar for service, working alongside human staff.” They can additionally collect live stock and demand data, making it available for forecasting and pricing, and for monitoring shelf inventory.

Looking ahead, we predict that retailers’ use of all these technologies will increase strongly, as investment costs become more realistic and intended outcomes quickly achievable. It will also be critical where a shortfall of labor necessitates better use of both mature and cutting edge systems. Having the right technology will be a key differentiator for retailers aiming to meet changing consumer demands, offer outstanding and memorable experiences, and deliver operational excellence.

Consumer tech retailers are set to have a strong focus on operational excellence in the coming two to three years. New and innovative approaches here will be critical in meeting the high expectations of consumers, particularly amid tough economic conditions.

“Meeting these expectations well can deliver substantial differentiation. And given high cost pressures and labor shortages it’s essential to the performance of omnichannel, online and offline stores,” explains Wolfgang Wanders, VP Product Management in Global MI at GfK.

The first area of change is how quickly consumers can get hold of the products they want. gfknewron Consumer Intelligence shows that people are now, in general, more concerned about delivery times and product availability than before the pandemic. This is in part due to the total growth in online sales during the associated lockdowns, a channel that people have remained highly dependent upon. There has been a leap in how many consumers choose retailers according to delivery options, from 32% pre-pandemic to 42% now.

Consumers can now often receive the products when they want, with same or next day delivery, or a specified time slot, depending on the market. This change in importance around delivery is motivating consumer tech retailers to have a clear focus on improving the efficiency and effectiveness of internal operations. 

Nearly nine in 10 such businesses are focused on improving processes to speed up and make more flexible how they get products to their customers, the survey reveals. Almost every online player is making changes here. The work was classed by stores of all types as having a very high strategic focus.

At the same time, the availability of products is influencing over a third of consumers’ choices of retailer. With this figure rising, it means that eliminating supply chain backlogs and introducing more effective demand forecasting will be increasingly critical to retailers.

There is a similarly strong focus on tightening supply chain operations, work that 81% of retailers expect to do in the next two to three years. “With consumers still driven strongly by price and now also by getting hold of products quickly,” Wanders notes, "achieving efficiencies and balance in the supply chain is vital. It can enable retailers to offer attractive ranges depending on season or event, while speeding up how they obtain and ship their products.”

While the actual breadth of items on offer only drives 17% of people’s retailer choice, the choices of available item matter. As such, nearly three quarters of consumer tech retailers will invest in improving their assortment.

Operational excellence for retailers also means more than optimizing what they already do. Many plan to expand the range of their service offerings. Some 67% are focused on their ecosystem of services. A high attention is generally being attributed to this area, across the industry.

What do these ecosystems represent in practice? For online players, there will be real efforts around creating retail media networks, allowing them to generate substantial extra revenues. This can also help with brand relationships by providing useful insights into the return on investment from marketing. Their determination in this area is the result of RMNs being relatively quick to establish and deliver revenues — as well as online businesses often having strong technology, data systems and processes in place. 

Across all types of retailer, there are other important ecosystem services in the line of focus. They involve evolutions of in-store entertainment, educational capabilities where products are complex or difficult to understand, and even offering healthcare services.³

At the same time, half of omnichannel players are looking at creating private labels, which could bolster consumer ‘stickiness’ by being a unique place to buy certain products. This will be critical in an increasingly competitive space. 

Meanwhile, consumers are looking for simplicity in their transactions, and to pay in the ways they want. This can encompass using different payment providers as well as spreading the costs over time, either as credit or as a monthly subscription. 

As a result, new payment services are being targeted by over two thirds of stores — a figure pushed up by particularly strong demand for changes in the Middle East and Africa where digital adoption soared during the pandemic. Nearly a third of those focused on ecosystem changes will work on offering subscription options to their customers, which can be complex to create but highly effective in securing long-lasting relationships.

Several of these ecosystem changes will be complex, and expensive. Retailers recognize that to succeed, they will need both strong technology and a high caliber workforce. In tech, strong data analytics will be important in enabling smart decisions and serving brand space — while automation will be key to delivering large new services in a scalable manner. 

Among the workforce, meanwhile, having a reliable and skilled staff will be crucial, as will having an environment in which talent can benurtured and developed. Workforce and talent are now a high strategic priority for all types of retailer. Over three quarters of retailers expect to focus on them in the coming few years, particularly those businesses keen to improve in-store experiences to head off tough competition from web and mobile rivals. Some 81% of offline retailers will focus on this area. 

Among online, and omnichannel players, the vast majority are also working on improving their staffing. They are likely to target both back office and consumer facing operations, with efforts being made to ensure workforce levels are as consistent as possible amid labor shortages. At the same time, there is little doubt that retailers will also turn to robotics to help plug gaps in staffing, primarily for their demanding behind-the-scenes operations.

The above elements will be central to the work of retailers worldwide as they aim to meet diverse consumer needs and build reliable revenues and efficiencies. By better understanding consumer needs and delivering on them with an excellent quality of services, retailers can look to secure success and stand out no matter the conditions.

Levels of focus on internal sustainable practices are somewhat similar to those associated with greener products and services, meanwhile. Yet the opportunities for change here are abundant. 

“Benefits include reducing energy usage in stores, warehouses or even data centers — and using more renewable sources,” explains McLaughlin. “Within their shops, for example, retailers are turning to much more energy efficient lighting and product displays, which make a big difference.”

By region, it should be noted that retailers’ sustainability efforts are significantly more concentrated in Europe. The comparison is particularly stark with Asia-Pacific and Latin America: while seven in 10 European retailers are focused on sustainable products/services and internal practices, in APAC and LatAm this drive is only maintained by around half of companies. This is in spite of LatAm consumers seeing sustainability as a top 10 personal value, as well as strong rises in its importance to Asian consumers.

Within sustainability, retailers’ emphasis is mainly on improving packaging. Particularly in Europe, there is a strong focus on using recycled material in boxes, and cutting the amount of packaging used overall. Educating consumers around sustainability is a secondary but notable focus, which is relatively common in most regions and will serve to increase demand. In areas outside Europe, sustainable delivery itself is seen as much less of a priority.

Alarmingly, while many consumers view tech as easily replaceable, retailers are doing little to limit the environmental impact. The survey shows that getting more life out of tech and durable products is, in general, relatively low on retailers’ agenda. Only 37% of retailers will focus on offering repair hubs in the near future, for example. The same relatively low proportion are set to sell second-life or refurbished products — no more than medium or low priorities for most. Improving warranties is the preserve of less than half of retailers globally, in spite of high importance in LatAm. Meanwhile, European retailers are above a fairly low average, in terms of their focus on device recycling.

Despite the ability of a purposeful business to custom — and to meet a variety of green and social regulations — many less active retailers here are quick to pass the buck. Over half of those not prioritizing sustainability blame a lack of consumer demand, saying it does not really matter to their customers. Some 44% cannot envisage much of a revenue upside, certainly not one worth the requisite investments. 

Meanwhile, nearly a third of those not active in sustainability say that it is up to manufacturers and governments — instead of themselves — to make the difference. This could become a problem for them, as regulations tighten in many nations, led by changes in developed markets.

“Looking ahead, retailers will be wise to advance significantly in their sense of purpose. Their steps will need to be well planned and executed, with the right skills, processes and technology in place. In addition, their business models must be underpinned by clear sustainability considerations,” says McLaughlin.

Getting these efforts right opens up scope for significant gains. Consumer tech retailers will earn strong efficiencies from any improvements to their core operations, while keeping themselves ahead of sustainability rules being introduced in many markets.

These retailers will also be able to win new customers, drive strong experiences, and build loyalty, by putting in place new services such as green stores. Such stores are not only more energy efficient but also educate consumers on important topics, and may include useful repair services to extend device life.

We predict that over the coming few years, a growing number of consumer tech retailers will make significant changes around purpose, particularly with regards to the environment. The most advanced will embed sustainability considerations into their core DNA. Such a move is essential to future proofing. There is also clear scope for first mover advantage. Effective decision-making, action and communication around purpose will enable retailers to sharpen their competitive edge.