Two key trends will shape the longer term business environment, in response to Deloitte’s 2024 U.S. retail industry outlook. Those trends are tighter labor markets and better long-term rates of interest, Deloitte said within the report, which focuses on how retailers can rekindle “profitable loyalty through experiences, personalization, and trust.”
“First, slow labor force growth and continued high demand require firms to supply higher wages to lower-skilled employees and to be more imaginative about hiring,” Deloitte economists Danny Bachman and Akrur Barua said. “Second, long-term rates of interest are unlikely to return to the lows of the late 2010s.”
Rates of interest and inflation overall had a noticeable impact on consumer spending at a critical time, in response to the report.
“The pandemic-induced ecommerce surge and provide chain disruption caused a loyalty calamity,” the Deloitte report’s authors wrote. “Three in 4 consumers tested recent brands and stores as they faced empty shelves. When life began normalizing, retailers focused on enticing customers back to their stores and keeping them within the so-called family. Then inflation hit.”
Deloitte weighs loyalty vs. higher pricing
Half of the retail executives Deloitte surveyed expect consumers to prioritize price over loyalty this yr. The incontrovertible fact that the net marketplace Temu’s app was essentially the most downloaded on Apple’s store within the U.S. last yr suggests that expectation is sensible, Deloitte said.
Just over two-thirds (64%) of retail executives Deloitte surveyed expect inflation-weary consumers to buy fewer goods — something that also concerns consumer packaged goods (CPG) firms as they pivot to profitable volume.
Consumer spending at discount retailers increased significantly yr over yr
Deloitte lists within the report three key suggestions for retailers to realize — or regain — consumers’ loyalty in 2024.
1. Lean into loyalty programs
Even amongst loyalty program members, not all customers spend the identical way. By creating tiers inside loyalty programs, retailers may give extra perks to the most important spenders in a more financially viable way, in response to Deloitte.
“While tiering programs usually are not recent, we see more investments occurring behind the scenes that take a more scientific approach to segmenting,” the report’s authors wrote. “This includes providing different offers, advantages, and communication to higher tiers and dealing toward migrating people up.”
Loyalty programs will also be cobranded, as is the case with Goal and Ulta, Kohl’s and Sephora, and other cases. Goal also offers its members free trials on Apple services. This reduces the retailer’s responsibility to offer all the advantages, Deloitte said. For instance, consumers can earn rewards toward their Goal and Ulta rewards programs after they buy Ulta products from Goal. The identical applies for Kohl’s shoppers buying Sephora products in Kohl’s stores and on its website. Retailers also needs to consider joint promotions with travel programs that involve airlines, hotels and restaurants, Deloitte said.
“By co-branding the advantages, retailers can get greater exposure and plug right into a broader set of consumers while providing exciting advantages with shared costs, potentially improving this system’s profitability,” Deloitte’s researchers said within the report.
With all this first-person purchasing data, loyalty programs give retailers the chance to personalize suggestions to consumers, giving room for added revenue, Deloitte said. This will be priceless to retailers which have extensive data from digital and in-store shopper visits.
Nearly two-thirds of outlets share or plan to share loyalty data with retail media network advertisers, Deloitte said, citing data from a Deloitte Digital report. Deloitte Digital released the report, called “Harness the ability of Retail Media Networks to raise the brand to consumer connection,” in December 2023.
2. Enhance omni-experience through in-store investments
Omnichannel inconsistencies and poor execution will be detrimental to loyalty, Deloitte said.
It cited its December 2023 omnichannel holiday evaluation report, which reviewed 145 firms’ omnichannel capabilities from Nov. 21 to 23, 2023. It found that buy online, pick up in store (BOPIS) and buy online, return in store (BORIS) “were widely available,” but just one in 10 retailers offered alternative delivery pickup.
Meanwhile, “a 3rd did not indicate how long it will take to receive a refund. Shipping was also a sore spot; by December 5, only a 3rd listed shipping cutoff times for Christmas arrival. And after we tested the claims of 17 firms offering on-time delivery of holiday gifts purchased on Dec. 19, nearly one-quarter of the vacation delivery orders arrived after Dec. 24.”
Whereas the pandemic’s digital acceleration benefited omnichannel shopping, Deloitte said, retailers need to take care of “a cohesive, consistent omni-experience.” It said the experience “is usually lacking, potentially eroding trust” despite pandemic-induced tech upgrades and recent last-mile and return options.
In accordance with Deloitte data, the highest 4 growth opportunities that retail executives anticipate in 2024 are:
- Strengthening loyalty programs (54% of executives chosen this)
- Strengthening ecommerce offerings (44%)
- Enhancing in-store customer experience (36%)
- Enhancing omnichannel experience (32%)
3. Drive individual engagement at scale with trustworthy AI
Constructing on first-party data that retailers acquire through loyalty programs and visits to their ecommerce sites and physical stores, retailers have a chance to further personalize product recommendations and tailored interactions, Deloitte said.
Half of retail executives are prioritizing AI-driven personalized product recommendations in 2024, Deloitte said. Nevertheless, only five in 10 retail executives are confident of their company’s ability to make use of AI effectively across their businesses, it added.
Meanwhile, eight in 10 consumers from Deloitte’s holiday study said they’d little to no trust in retailers’ ability to make use of artificial intelligence responsibly.
“Retailers also see this as a challenge, as greater than three-quarters said using next-generation AI technologies in the subsequent five years will strain consumer trust and heighten their concerns around privacy violations, surveillance, lack of transparency/accountability, and job displacement,” Deloitte said.
Trust in a brand drops 144% for patrons who know a brand is using AI, Deloitte data found. To construct trust, Deloitte said, brands should concentrate on 4 aspects:
- Humanity: Retailers should concentrate on constructing human interactions, Deloitte said. “AI needs to be trained with an expansive algorithm to be aware of the context of the shopper.” That may include training AI to present condolences if a consumer mentions a death within the family, Deloitte said for instance.
- Transparency: Retailers should explain how and why chatbots are getting used, providing specific details about their purpose and performance, Deloitte said.
- Capability: Retailers should give employees the possibility to make use of AI tools in a zero-risk environment. From there, retailers should highlight the tools’ advantages “while underscoring that the tools don’t undermine their work and value.”
- Reliability: Retailers should clarify what consumers can expect from AI tools in order to “drive perceptions of reliability.”
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