Retailers had a tall order to fill in 2022, adjusting for pandemic-caused changes in shopping patterns, rising prices, a diminishing workforce and unrelenting demand for fast delivery. Yet, the National Retail Federation forecasts retail sales to exceed $4.86 trillion. That represents growth of 6% to 8% over 2021, a year when sales accelerated by a hard-to-beat 14%.
Impressively, retailers did beat the numbers, but not all of them beat shopper expectations.
Change encourages adjustment, after all, and retailers had a lot to adjust to in 2022. Upon reflection, it’s likely many will recognize some missteps made while they were trying to keep pace with expenses and shifting shopper behavior. Here are six big ones.
A Selection Of Trip-Ups That Can Be Righted In 2023
- Loyalty programs that clawed back their benefits. A big go-to when trying to manage rising costs is cutting back on deliverables, and expectations. An obvious example is the practice of reducing the contents of a product. This kind of shrinkage was extended to loyalty programs in 2022. Dunkin’ Donuts and Chipotle, among others, raised the number of points required to get free food. The blowback was harsh – members used social media to amplify their sense of betrayal, and many boycotted. Reward operators, take heed: The data collected via loyalty memberships is essential not just for knowing the where and how of member spending, but also the importance of when. The timing was a crucial misstep for these programs because their members were seeking ways to cut expenses, too, and using their loyalty points and perks to stretch their budgets.
- Being underprepared for a major product launch. McDonald’s evidently didn’t expect its grownup customers to gobble up every single adult happy meal it introduced in October. But they did, and within a week of launch in most locations, the McDonald’s staff was overwhelmed and customers who couldn’t get one were disappointed. The big attraction: the prizes inside the meal boxes, launched in partnership with the streetwear brand Cactus Plant Flea Market. Soon the toys were being resold on eBay at hyper-inflated prices. Ditto for select Cactus Plant Flea Market merchandise available on a designated McDonald’s website. The adult happy meals were available for a limited time, but if McDonald’s chooses another biggie co-branded launch in 2023, it hopefully will apply the lessons learned (including staffing up).
- Lack of cost transparency in membership programs. Lots of consumers are willing to “pay to play” for membership programs such as Amazon Prime, but they will feel misled if a program positioned as “free” is actually available only through a paid program. Such is the case with Walmart Rewards. While the rewards program is free, it requires enrollment in Walmart+, and that program charges $98 a year, according to the Walmart+ membership plans page. People who shop Walmart to save money might feel shut out by this cost barrier. But this may change in 2023, based on the program announcement in August 2022. In it, Walmart said it would focus first on rewarding Walmart+ members, then “expand the program to deliver new ways to earn rewards.” Hopefully, this means Walmart Rewards will become eligible to those who are not Walmart+ members. Shopper data might determine that decision.
- Not using shopper data to optimize branding partnerships. Many retailers and brands successfully coupled up in 2022, including Target and Ulta, Nordstrom and Allbirds, Macy’s and Toys “R” Us. These partnerships tend to generate higher sales, but retailers and brands that do not maximize their shared data are missing out on even more profitable opportunities. For example, a shop within a shop, such as a beauty brand inside a mass merchant, can cause cannibalization in the store’s own beauty department. If that retailer culls through shared, co-branded shopper data, it can detect patterns and use the information to design promotions that inspire more purchases. It’s important to ensure marketing supports both partners, however, as the failed distribution relationship between Starbucks and Kraft
- Putting too much lipstick on a merger. Of course, companies in the midst of major mergers emphasize the benefits of the deal, such as cost synergies that will save customers money while profiting shareholders. These benefits may be real, but whale-sized mergers have also been shown to raise costs for suppliers, and therefore shoppers, and even limit access to fresh foods in lower-income and rural markets. This was the partial reaction to the Kroger and Albertsons’ $24.6 billion deal announcement in October 2022. Many observers have correlated mega food mergers with food deserts, and pointed to history as evidence. This deal is expected to close in 2024, if approved by federal regulators. So Kroger and Albertsons have time to settle unease about food banks in 2023, by committing to food stores in at-risk areas. (Kroger does donate food to hunger-relief agencies now.)
- Being over-ambitious on spending predictions. In 2021, retailers dealt with production shortages and their supply chains were overwhelmed by customer demand. In 2022, many apparently predicted shopper demand would remain the same, and ordered ambitiously. Some also began ordering earlier than the customary six months, to as far back as 12 months, NPR’s Marketplace reported. But predicting what people will want so far in advance forced them to play the roles of psychics. Not all were good at it. Target and Walmart were among those that had to discount massive amounts of merchandise. In 2023, they might benefit from an inventory-management game plan like that at Dick’s Sporting Goods, which shifted overstocks to its own discount chains, which are now expanding.
Improvement Requires Reflection, So Reflect On Customers
In 2023, Fitch Ratings projects slight spending growth in retail, especially in staple categories. A company’s success, it advises, will hinge in large part on execution and course correction. This is not such a tall order.
Recognizing and correcting missteps will require understanding shopper expectations, though, and that takes the thoughtful collection and analysis of their data, as well as fluent communication. The best leaders are strong enough to know they have weak spots. Retailers and brands might find their own in the relationships with their shoppers.
This article originally appeared in Forbes.
