As we step into spring of 2024, the retail industry faces a landscape shaped by economic shifts and technological advancements. Despite the challenges of 2023, there's a glimmer of optimism fuelled by easing inflation and rising consumer confidence. For businesses of all sizes, this presents an opportunity to cautiously embrace the year ahead.
Meanwhile, the integration of AR, VR, and AI technologies promises to redefine the retail experience, driving personalised interactions and operational efficiency. The collision of retail and technological innovation is a trend that will continue to shape the industry far beyond the year to come.
In this blog, we explore how these key trends affect the retail market and what business owners can do to make the most of these predictions. We also share Deloitte’s latest model for segmenting retail trends into 3 key segments: Markets, Models and Mechanics.
Economic Forecasts and Small Business Optimism
2023 proved to be a difficult year for the retail industry.
With low consumer confidence, rising fuel prices, and a cost of living crisis, UK customers really felt the squeeze in their discretionary income. While the UK retail market continued to grow in the past year, this rate of growth was sufficiently slowed down.
However, the latest financial report from Goldman Sachs forecasts a change in these headwinds.
So what is the reason for this change?
The easing in inflation has left consumers feeling more optimistic about their spending in 2024.This slow increase in consumer confidence is allowing people within the retail sector to begin feeling more confident about their sales in the near future.
A year of cautious optimism
This change in economic outlook is an exciting time for businesses of all sizes, especially small businesses, who often see the biggest hit on their profits during times of economic downturn.
Business owners, regardless of their organisation’s size, should play for 2024 with an increased sense of cautious optimism. This means, keeping a close eye on retail trends in the next 12 months.
It’s important to note that this is about more than trending products. Retailers should keep track of how consumers are spending and the way in which they interact with businesses.
For example, the rise of social media giant TikTok has ushered in a new age of consumerism: customers buying products directly through social media. The latest research from HubSpot shows that 17% of all consumers indicate buying a product via social media in the past 3 months. As expected this number is especially high for millennials at 27% and Gen Z at 22%.
Therefore, savvy business owners looking to stay ahead of competition and engage the youngest consumer generations, should consider how they can introduce more direct sales funnels via social media platforms such as TikTok and Instagram.
This shift also reflects back on a wider trend within the retail industry - the collision of tech and retail. In a world, where our online and offline identities are increasingly blended, it is no wonder that tech is seeping into how we shop.
Below we discuss just this: how the retail industry of 2024 shows signs of being more tech driven than ever.
Tech-Driven Retail Transformation
AR and VR: Redefining Retail Experiences
The integration of AR (Augmented Reality) and VR (Virtual Reality) into the retail space marks a transformative shift in how consumers engage with brands and products. As immersive technologies become more accessible and commonplace, businesses have unique opportunities to create captivating and immersive experiences.
So what might this look like in practice?
Imagine virtual showrooms where shoppers can explore products in a lifelike environment or AR tools that allow them to visualise how a piece of furniture would fit into their living space. Such experiences not only enhance engagement but also empower consumers to make informed purchasing decisions with confidence. What’s more they give users a unique opportunity to interact with international brands, which they might not otherwise have access to.
Establishing Customer Confidence Through Tech
Customers don’t want to feel like they are being tricked into buying something they don’t need. AR and VR technologies hold the potential to help counteract these negative feelings. These cutting edge tools can ensure that customers are really buying things they need and will love.
This not only creates an opportunity for building greater trust, but also helps instil confidence in patrons.
What’s more, AR and VR tools can help businesses differentiate their product and provide unique experiences. Take for example American prescription glasses retailer and disruptor, Warby Parker.
They were one of the first companies to offer users a chance to ‘virtually try on’ glasses via their website, using AR. These tools, which are now commonly used among many online glasses retailers instil confidence in their customers and give them a unique angle for sales and marketing.
Personalization Powered by AI
With the launch of ChatGPT in November of 2023, the power of generative AI transformed our lives overnight. The effects of this new technology are undeniably changing the way we consume content, manage tasks in our workplace and the pace at which we can solve complex problems.
Therefore it's no wonder that AI is proving to be a useful tool in the retail space for personalisation.
Research indicates that consumers, particularly Gen Z and Millennials, gravitate towards personalised experiences, leading to increased engagement and conversion rates. By leveraging AI, retailers can use customer data to deliver tailored shopping experiences that resonate with individual preferences and behaviours.
From personalised product recommendations to targeted promotions, AI-driven personalisation fosters deeper connections with customers, driving higher levels of satisfaction and loyalty.
For businesses looking to stay ahead of their competitors, AI unlocks a powerful new tool for growth and differentiation.
AI for Operational Excellence
Beyond enhancing customer experiences, AI holds immense potential for optimising operational efficiency within the retail sector. In 2024, businesses have the opportunity to leverage AI-driven solutions for tasks ranging from inventory management to supply chain optimization and customer service automation.
Automating these routine tasks and streamlining processes, empowers retailers to allocate resources more effectively, freeing up time and manpower to focus on delivering exceptional service. The adoption of AI-enabled technologies not only drives cost savings but also fosters agility and responsiveness.
Deloitte's Retail Model for 2024 and Beyond
Markets, Models and Mechanics
The ever-changing landscape of the retail industry, greatly influenced by technological changes, is increasingly difficult and complex to navigate. In order to make sense of these fast-moving changes - Deloitte suggests defining the industry through a new model.
This is known as: Markets, Models and Mechanics.
Below we break down each of these parameters and Deloitte’s key predictions in each segment.
Markets
When defining what comes under this segment retailers should ask themselves: What products will we offer, who will be our target audience, and what novel avenues can we explore to generate value?
For Deloitte the 2024 Market trends are defined by 3 key areas:
Retailers are responding to changing consumer demographics by developing products targeted at previously under-represented consumer groups.
Traditional products and channels are merging with the digital world to create new consumer experiences through AI, AR and VR (as spoken about above).
Ethical and sustainable practices are becoming increasingly important, driving growth in areas such as the resale market and healthier food options.
Models
Models in retail are defined by value propositions, value creation and value capture. Traditional versions of these models have historically provided a solid foundation for retailers. However, the emergence of new competitive forces and systemic challenges, such as climate change, have profoundly reshaped the landscape of value creation for retailers.
Deloitte suggests that in response to these evolving market dynamics, businesses must adapt and innovate to remain relevant and competitive.
So what does this look like in practice? Here are 3 key trends shared in Deloitte’s paper:
A collision between technological innovation and the retail industry will help create new segments within the space which are currently unexplored. They predict social commerce revolutionising the retail space (as spoken about above) and more highly customisable nutritional options for people through biotechnology.
The retail supply chain is forecasted to change a lot in the next ten years. As technological advances make the way we shop increasingly complex, supplier chains will have to keep up. It is also predicted that safety, responsibility and sustainability will play a key role in the transformation of these supply chains.
A complete technological overhaul will be seen in the way retail businesses operate in the coming years. This includes the centralisation of offerings encompassing cloud services, cybersecurity, e-commerce, and retail media, all under one umbrella.
Mechanics
Technological advancements, changes in the employer-employee dynamic, and economic uncertainty are influencing how retailers prioritise strategic and operational decisions.
Key trends within this segment include:
AI being deployed to improve performance and productivity, both for consumers and retail workers.
Retailers are changing focus to protect and support their workers more, while exploring new revenue streams and growth opportunities.
Conclusion
The retail industry, like many other sectors, is poised for significant technological progress and innovation in 2024. Anticipated positive market conditions will allow businesses to embrace optimism and explore innovative approaches in product development and sales strategies.
The integration of AR, VR, and AI presents compelling opportunities for businesses to elevate customer engagement, foster trust, and achieve operational excellence. Coupled with the transformative impact of generative AI personalisation, these technologies are set to shape a future of retail that exceeds our current imagination.
For a comprehensive understanding of the evolving dynamics in the retail landscape, Deloitte's Markets, Models, and Mechanics model provides a user-friendly overview, aiding businesses in staying abreast of future trends in this exciting year ahead!
Are you looking to make 2024 your year of retail innovation? Creating new digital products, which help accelerate your digital transformation roadmap doesn’t have to be hard!
Book a call with our team today, to explore your options for flexible digital delivery!
