Predictions for the Future of the Retail Industry
The industry is evolving with exponential increases in ecommerce and trends toward omnichannel shopping experiences.
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The retail industry is evolving with exponential increases in ecommerce and trends toward omnichannel shopping experiences. Along with these shifts, 2022 will see the industry capitalizing on direct-to-consumer strategies, relying more on first-party data and responding to an imperative for supply chain efficiency.
Here are just a few of the macro trends that will shape the retail industry in 2022.
Capitalizing on direct-to-consumer (D2C) retail strategies
This year will see more legacy brands move to D2C, a retail model where companies can market, sell and ship their products directly to the consumer, bypassing third-party retailers, wholesalers or other middlemen.
According to forecasts by eMarketer, U.S. D2C ecommerce sales will reach $151.20 billion in 2022, an increase of 16.9% compared to last year. eMarketer noted that "while D2C purchasing will only account for 2.5% of total retail sales in the year ahead, these brands have challenged and successfully disrupted the retail industry by diversifying consumer experience."
Consumers are helping D2C businesses gain momentum. GfK's What's Next 4 Consumers study found that in 2021, 62% of US consumers tried a D2C brand and 70% of consumers switched from traditional brands to D2C offerings in at least one category. GfK's research also revealed that 40% of U.S. consumers intend to buy more D2C products and services after lockdowns and restrictions have passed. The study noted that clothing and fashion was the most popular D2C category consumers tried last year.
A survey by Capgemini found that the top reasons why consumers are ordering more products directly from brands are a better buying experience (60%) and gaining access to brand loyalty programs (59%).
Nike is one brand that has successfully adapted to the D2C retail strategy, which allows the company to own the entire customer relationship and improve its share of gross margins. According to Statista, in 2021, Nike's D2C strategy accounted for approximately 39% of its total brand revenue, meaning that for every $100 made by the brand globally, nearly $40 was generated from direct sales.
With years of accumulated brand equity and brand recognition, legacy brands like Nike are well-positioned to capitalize on D2C. 2022 will see other legacy brands embrace this business model to directly reach consumers and capture a larger part of the ecommerce market.
Relying on first-party data
Consumers are becoming more aware of and concerned about how companies track, collect and use their data. According to research from KPMG, 86% of U.S. citizens indicate that data privacy is a growing concern for them. Companies such as Apple and Google are implementing privacy protection measures that require marketers to shift away from reliance on third-party data and prioritize first-party data.
Last year, Apple introduced mobile operating system iOS 14.5, which allows iPhone and iPad users a choice to opt in or out of apps that track their behavior and sell their personal data. The vast majority of consumers are opting out of this data collection. The most recent data from Analytics platform Flurry reports that the U.S. daily opt-in rate after the launch of iOS 14.5 across all apps is just 6%.
Marketers are further seeing the demise of third-party data collection, as web browsers like Safari and Firefox block third-party tracking cookies, and as Google phases out third-party cookies on Chrome in 2023.
The end of third-party data tracking means that marketers must find new ways to reach prospective customers. First-party data is one of the strategies brands will use to gain insight into the behavior of their target consumers.
Companies will use their websites, social media pages and other online assets to ramp up first-party data collection, tracking how consumers are interacting with these digital assets. Opt-in messages, where users can choose to receive email communication from the company, will also be leveraged by brands to effectively capture first-party data. Other approaches include loyalty programs, newsletters, polls and QR codes.
Responding to an imperative for supply chain efficiency
The pandemic disrupted supply chain operations across almost every industry. According to a survey by Ernst & Young, serious supply chain disruptions affected 57% of companies surveyed, with 72% of these companies reporting a negative effect.
Optimizing supply chain efficiencies will be a key differentiator for retail companies in 2022 as consumers continue to feel the impact of supply chain disruptions. Research from mobile and IoT device management company SOTI found that over half (57%) of global consumers experienced one or more items not being available and had to purchase alternatives or go to different retailers to find items in stock. Over 35% of shoppers indicated items they wanted to purchase have not been available at all.
To mitigate the major pandemic-driven stresses on the supply chain, retailers will focus on improving the overall efficiency of logistics, from product quality control to inventory levels, shipping and cost reduction. Retailers will look to inject greater predictability, flexibility and speed into their supply chain operations to maximize customer service.
Supply chain efficiencies in 2022 will also come through more brand acquisitions that allow a parent company to run multiple smaller brands with one main operation and supply chain team to hit profitable unit economics.