Research firm commercetools has been tracking shifts in retail commerce for nearly a decade and has found that changes in retail over the past five years are unparalleled. Changes are being driven by global events and the development of transformative technologies that quickly become expected by customers, challenging businesses to innovate and adapt continuously.
In its report, “Reimagining Retail Commerce in 2024,” the firm highlighted the top challenges retailers are facing as well as the biggest opportunities that lie ahead. The challenges, as anyone in retail knows, are great: labor shortages, increased cost of goods, the need for capital improvements like technology investments and store redesigns, and increased competition.
But in the face of these challenges, there are opportunities. Technology is available to strengthen your relationship with customers. Artificial intelligence (AI) can help with predictability and future expenditures, and retailers can gain a treasure trove of data on their consumers to deliver personalized shopping experiences.
Here is a more detailed look at the challenges commercetools identified for retailers:
Diminishing customer loyalty. In the convenience store space, competition is as strong as it ever has been due to the growth of third-party delivery. Every store in a given market is now a potential competitor just by opening an app on your phone. As consumer behavior shifts, loyalty to brands is declining, giving rise to shoppers who embrace boundary-free browsing, elevated expectations for speedy shopping and sustainable practices.
According to commercetools, the shopping journey is fragmented, driven by social media, influencers and online content as key sources of inspiration. This trend is prominent among millennials and Gen Z, leading to a market divided between expense cutters and big spenders. Plus, due to high inflation and the cost-of-living crisis in many countries, many consumers are tightening their budgets and becoming more price-sensitive, impacting customer loyalty.
Performance-related issues. Customer experience and loyalty face continued performance challenges, such as slow website loading, complex navigation, insufficient personalization, and checkout and payment methods issues, including real-time inventory inaccuracies.
As c-stores invested in technology, one of the buzz phrases was that they were looking to “reduce friction” for customers during the checkout process. However, they often came up short for various reasons that only served to frustrate consumers. Reducing checkout friction is as critical as ever, both in-store and online. According to the Baymard Institute, about 70% of consumers abandon their carts. The culprit? Overcomplicated checkout processes with numerous forms and intrusive pop-ups, lacking guest checkout options and preferred payment alternatives.
Getting omnichannel right. There was a time in the convenience store industry when stores were laid out with displays by sales reps smart enough to grease the store manager with a $20 bill. Today, merchandising and marketing are guided by complex algorithms, consumer sales data and even AI predictability models for the weeks ahead. This model recognizes that customers nowadays can be anywhere when they want something. That is a far cry from getting them in your stores and showing them what you have. A customer in traffic may wish to order dinner, so it’s there when they get home. Are you on their radar? Is your menu on their phone?
Successful omnichannel implementation should now be part of the customer service experience. The difficulty lies in seamlessly integrating sales channels, which encompass online platforms, physical stores, mobile apps, marketplaces and social media.
While the challenges seem daunting, here are some opportunities commercetools identified:
Boost revenue by targeting growing customer segments. Many retailers prioritize particular customer segments in their digital strategy, often directing their attention toward digitally savvy shoppers, primarily in younger demographics. Millennials, Gen Z and, most recently, Generation Alpha (Gen A), the youngest consumers born between 2010 and 2024, are commonly viewed as digital natives. They continue to constitute the primary demographic focus for retailers emphasizing digital initiatives.
However, retailers must extend their gaze beyond traditional segmentations and explore additional customer groups to propel their growth plans. Not only have the older generations of Generation X and boomers become more digitally savvy, especially as many were forced to explore digital services during the COVID-19 pandemic, but this trend goes beyond age brackets. However, representing generational and multicultural changes in retail strategies shouldn’t wait long. Armed with these insights, commercetools advised retailers to focus on two tactics:
* Expanding reach: Retailers can harness the power of data analytics to identify and understand the preferences of these untapped segments. By tailoring marketing strategies, product offerings and user experiences, brands can effectively expand their reach and capture the attention of new customer groups.
* Enhancing personalization: Investing in hyper-personalization tools can assist retailers in crafting tailored experiences that resonate with diverse age groups, multicultural segments and various demographics. Customizing marketing messages, product recommendations and user interfaces can significantly boost engagement and conversion rates. However, the challenge for 2024 is delivering hyper-personalization while respecting customer privacy, protecting data and serving up what consumers have in mind — all in real-time.
Bring AI into the fold. According to Raconteur, AI investments in retail (which include machine learning, chatbots, swarm intelligence, natural language processing, and image and video analytics) are expected to reach $24.1 billion by 2028. Experts anticipate a substantial growth in the impact of AI in retail, with a focus on personalization and creating seamless customer journeys. While AI holds immense potential for retailers, it’s essential to use such a powerful tool intentionally.
Prioritize customer data security. As digital platforms have become indispensable for online transactions, retailers find themselves at the intersection of innovation and consumer convenience. However, this digital prowess brings a crucial responsibility: Safeguarding customer data and privacy. Adopting robust measures to protect sensitive information fosters consumer trust and ensures compliance with evolving data protection regulations.
For retailers to create the best line of defense, robust security and monitoring are crucial — and that will become one of the most sought-after requirements for digital services, including commerce. This entails enhancing secure payment processing capabilities, implementing data encryption, enforcing stringent data governance, applying access controls and strong authentication, and adhering to global compliance standards.
Obsess over the post-purchase experience. Loyalty programs allow retailers to understand consumers beyond transactions, and the post-purchase journey fosters lasting connections and maximizes customer lifetime value (CLV). From personalized engagement initiatives to seamless customer support, retailers can explore a range of tactics to create a relationship that extends beyond a single transaction.
Retailers, commercetools said, should invest in personalized communication strategies, tailoring post-purchase messages to customers based on their preferences and purchase history. Regarding engagement and loyalty programs, retailers can use this data to develop personalized post-purchase engagement initiatives to strengthen customer connections. Consider designing and promoting loyalty programs that offer rewards, discounts, exclusive access, and even unexpected bonuses to delight customers and incentivize repeat purchases.
While the road ahead will surely be a grind as we try to capture more of the consumer’s disposable income, understanding the opportunities ahead and the pitfalls to avoid will ensure you spend your money and time in the right areas.
Elie Y. Katz is the CEO and president of National Retail Solutions (NRS).
