Retail news this week was a mix of both good and bad. This is the same as what has been happening in the retail industry at least since the start of this year.
External factors are a new twist, such as how governments respond to issues like inflation and retail theft. Add to that a look back at NFTs and metaverses, both of which may not be as advanced as we thought. Now let’s get started!
Retail economic indicators
Consumer Price Index for the US was hotter than anticipated. CPI for March 2024 You can also increase your chances by increasing the number of people who you are able to contact. Initially, February had been up 0.4% compared to January. The February data was viewed as an outlier at the time. This doesn’t appear to be the case anymore. CPI rose 3.5% year-over-year in March. Two data points may be enough to create a trend.
The food index only increased by 0.1% in February. This is an area where the consumer tends to notice inflation. The biggest contributors to this increase were gas and shelter prices, which accounted for more than half the increase. The energy sector increased by 2.1% in the 12-month period ending March. This was the first time since February 2023 that the figure had increased year-over-year. It’s neither good nor bad, except that energy can fluctuate more than other prices. This read was done before Middle East politics became even more volatile, so there’s likely to be more bad news for April.
According to retail sales CNBC/NRF Retail MonitorIn March, the “stable pace of growth” continued. The retail sales increased by 2.72% (without seasonal adjustments) and the core retail sector, which does not include restaurants, autos, or gasoline, grew by 2.92%. This was lower than inflation but still not too far. Core retail sales increased 3.12% in Q1. This number is not seasonally adjusted, but it is important to note that Easter was 9 days earlier in March than last year.
The UK has a number of different types of BRC-KPMG Retail Sales Monitor Retail sales are also making progress. Retail sales were 2.9% higher year-over-year, while Q1’s sales growth overall was 2.1%. In Q1, food sales grew 6.8% over the previous year. BRC commented on results and said that Easter was early this year, so the numbers aren’t quite as good as they seem. It’s another example of how what appears to be good news may actually contain some negative information.
Federal Reserve Bank of Philadelphia reported The US Credit Card Delinquency Rates for Q4 of 2023 were found to be the highest since 2012. At the end of last December, 3.5% of credit card balances had at least 30 day past due. In a record high, the share of cards making only minimum payments increased by 34 basis points. Around 10% of the borrowers carry balances higher than $5,200. Approximately 1/3 of credit card users pay off their monthly balance. The consumer savings that were built over the pandemic seem to have disappeared. It was assumed that when that occurred late last year that the consumers would cut back. The consumers did not. Credit cards are also a diminishing resource. Has the consumer reached their limit? We seem to be asking this question a lot.
Retail Tech & Research Data
BazaarVoice is the home of tech and consumer research. Released The results of an 8,000-shopper survey, which included 2,000 US consumers. In their Shopper Preference Report they focused on the US specific results, focusing on Return to Office and differences in shopping behaviour compared to work from home. More than half of the US consumers who have returned to work spend more in stores rather than online, which represents a substantial difference compared with the average. It’s hard to say if RTO shoppers are now more focused on convenience and less interested in spending time shopping, or whether it is the lure of browsing at lunch. This is an interesting stat, given the difficulty in getting consumers to RTO and its impact on shopping centers downtown.
Adyen Australia publishes the Adyen index in collaboration with Centre for Economic Business Research. They Find out more about In the past year, 43% of Australian retail stores reported being victims to data breaches or cyberattacks. This is a 10% rise over 2022. In 2023, Australian retailers suffered an average loss of AU$2.2million due to fraud. Only 67% said that they have effective fraud prevention measures in place. The shoppers are also taking notice. 63% of Australians say that they feel less safe shopping now than 10 years ago due to increased payment fraud risks. As a final reminder, do you think that this has changed their behavior in terms of shopping? Most likely, no.
The NRF in the US has been active lobbying to crack down on organized retail crime, especially. The UK government appears to be putting together a Response Retail theft is on the rise, whether it’s organized or unorganized. The following things have been approved: A standalone offense for assaults against retail workers; expanding electronic monitoring to “prolific shoplifters”, including a greater use of face recognition; and making it easier to report crime to catch more criminals, such as allowing small businesses to upload videos and photos taken from their phones. The expansion will also include plans for GPS-monitored curfews, exclusion zones and a greater use of tech to prevent the sale of stolen goods on online marketplaces. The government is often the only option for an industry that can’t solve its own problems. This may not be to their liking. The crackdown also includes an interesting mandate that aims to decrease theft. This could be seen, for instance, as targeting cashierless shops.
AI & Retail
This week I came across only one AI-related article that was worth sharing, and it took me a while to decide whether or not I would mention it. It’s just as important to point out overstatements as it is positive or negative developments. It would be a waste of time to link it, but let me say there is a great deal that needs to happen around AI in order for it’s capabilities, such as GenAI or optimization, before they can become useful.
Will we have an AI that shops for us this year, say? In 2024, we might have seen some proofs-of-concept or pilots. But I doubt that any AI agents will exist where they will take your preferences, your budget and describe what you want. Amazon won’t deliver my dog food as often as I want, despite the fact that the company knows exactly what I like and how I use it. In the past, I have tried to find it myself agents and they always failed. It could be that the excitement of hunting and missing out on this part of the adventure is a factor. It could be a case of FOMO. You’re great for finding this thing but how did you select it? It could be due to a lack transparency in the selection process – what made you choose this item? What part of my criteria did you use the most? (And do I need it tweaked) There’s so much to do in the next eight months.
AI will be used to create personalized storefronts by 2024. No. Not because AI could not come up with the personalized recommendations, but rather because your site and your entire product line must be componentized and attributed in order to implement a recommendation of this nature, regardless of whether it was made by AI. Reordering your search results in a way that presents a “personalized” list of products is one thing. Rebuilding the emphasis or order of product descriptions, reviews or ratings, images, and similar products is another matter. This is a difficult task, because AI would not be required. However, you will need an eCom system that can support this kind of dynamic rebuilding, as shoppers log in and spend more time browsing the website. Even if this existed, many retailers still use older eCom platforms because it is difficult to upgrade.
AI will personalization improve? Probably. There is still a big difference between the terms “relevant” and “personalized”. Even with AI, we haven’t achieved parity. AI may be able to identify patterns that shift the needle from “inappropriate” to more relevant by better identifying context and timing effects. Are retailers planning to track and create digital twins of their customers? This sounds like a privacy and PII nightmare.
A retailer does not want to have all the information about their customers, as that would mean they’d need to safeguard that data. Retailers only want the minimal amount of data to boost your spending. The article that inspired the whole section had a laugh-out loud moment: “Retailers, CPG brands and other companies are already experts in leveraging customer data and analytics to provide consumers with customized offers and coupons.” Cry laughing. Some are improving, but let’s just say that Within the same articleThe author pointed out we live in an age where you are still followed around by online advertisements for products you have already purchased. Experts indeed.
One point is worth mentioning. AI is now able to sum up reviews. It’s amazing to see my non-industry family and friends understand what I mean (Amazon review summaries work great). still Miss the small print that states the summary is generated by AI. The users don’t care how the summary was created. They like it and use it. GenAI is a great tool for summarizing anything. I think we will see this more in 2024.
How can you tell if AI is just hype or not? You can try this: “Using synthetic predictive data, a retail store could forecast that shoppers who purchase Starbucks coffee on Tuesday at Safeway are also more likely to purchase Kerrygold butter during the same trip. They could then, for instance, send them mobile coupons while they were in the shop.” Since synthetic data can be anonymized, retailers could use this method without violating consumer privacy.
There’s a lot to unpack. Why send the coupon first if the customer is likely to purchase the butter? AI platforms talk about synthetic data, because there are no more human-generated datasets of any kind to use in their LLM’s. Synthetic data should only be used by retailers to dilute their results. Why would you anonymize the synthetic data? This is a made-up data. It’s made up. It’s not supposed to contain any PII, as it was generated by a third party. Looks like Real personal data. Synthetic data is used (theoretically, no one can prove that it’s not the “computer science equivalent of inbreeding”). Create your own models. Models are created using your real-world data. Trains The model. Do not mix the two.
The last nugget was: “Retailers have been the first to adopt futuristic technology, despite stiff competition, operating with razor-thin profit margins and facing fierce competition.” I am totally and completely disagree. Retailers are notorious for being slow to adopt new technologies. In the last 25 years, I’ve watched consumers embrace technology faster than retailers and then watch retailers try to figure out how to respond. Still, I encounter retailers that don’t like to provide mobile devices for their sales associates because they “distract” them and “get the way of sale”. These razor-thin profit margins are what create an environment that is anti-innovation. The retailers can’t take on big risks. Retailers don’t make enough money to afford nine failures to achieve one innovation. Some people are quick followers. When it comes to innovations, this is as close as one can get.
Retail winners and losers
In general, retail is not very innovative. When it comes to big risks, the economics are against retailers. Not all retailers adopting new ideas are slow. A good example is Wow Bao. Asian-inspired fast food restaurants have been around for a while. NFT – a new way to experiment Metaverse crossovers. They are tied into the company’s “Hot Buns Club”, a rewards program. Wow Bao hosts a Dim Sum Palace in Roblox. It includes a Dance Floor, a DJ, and other exploratory features. A free avatar accessory is hidden inside the club. Connecting their Roblox accounts to their loyalty accounts allows them to claim this accessory digitally, as well as enter to win free baos for an entire year, and receive a “CollectaBao” NFT. Starbucks recently redesigned their NFT Program – essentially switching platforms – which I suppose is enough to keep the loyalty ecosystem going.
The next big news this week, and as a further example of the dangers associated with generalization was probably that of Announcement A new collaboration in innovation (W23 Global Venture Fund), between the retail giants Tesco (Ahold Delhaize), Woolworths, Empire Company Ltd. (Sobeys), Shoprite, and Woolworths, has been formed. The global initiative will be focused on “scale-ups”, which will improve customer experience in stores and online. Tesco will alone contribute $25 million equivalent over five years. The news follows announcements made in 2023 by retailers such as Walmart and Target that they would be cutting back on their innovation labs, or equivalents.
This type of investment cycle is periodic, so this announcement of a venture fund probably marks the beginning of the next round. These funds face a challenge in bringing innovation into their enterprise. It is easier to keep the “we’ve already done that” comments out of the enterprise by creating a separate organization, but also harder to get the innovation back in the fund. Tesco’s $5 million per annum is nothing to them, but even when multiplied by five it would still not be enough to finance the next AI unicorn. Let’s wait and see.
We’ll end with something that, in my opinion, isn’t very innovative: Private Label Credit Cards (PLCC). But I’ll be the first one to admit I have no idea what they are. I had my closest encounter with PLCC in the dark days of Montgomery Wards. At the time I was working as a consultant on a Wards project. It was possible that the company sold its PLCC division in a last-ditch effort to raise enough money to fund the changes its leaders wanted to make. Without that money, nothing was left. The real estate, brand recognition, and this last source of profit were all gone. It was impossible to find parts anymore for the old technology. Rooms full of Cobol programmers said that the tech was too outdated and that it was incompatible with anything else.
Intuitively, I understood that losing the PLCC was a bad thing, regardless of the price. I also knew the likely reason for its success was due to the fact that the consumers who paid their bills late and incurred high interest rates were often poor. Today, core rates have risen, and interest rates also. PLCC earns money from fees – fees which President Biden is targeting. The maximum late fee will now be $8 per month, compared with the average $32 that is charged today.
The following is a list of all the languages that are spoken in this country. Expected Department stores that rely on PLCC heavily will be squeezed. The pinch will also hit specialty retailers, but department stores are expected to be the hardest hit. Their revenue has already been squeezed by more cautious consumer spending. Macy’s, Nordstrom’s, and Target generate an average of 3% revenue through their PLCC program. Kohl’s Macy’s and Target have all reported declining credit card revenues for 2023/24. Is PLCC doomed to extinction with the growth of Buy Now Pay Later? Consumers looking for savings will certainly be interested in the 29,33% interest rate average on retailer-issued cards compared to the 20.75% average across US credit card companies. Target’s Circle loyalty program has a new paid level. It will be interesting to watch if Red Card business suffers as a consequence.
The Bottom Line
AI is causing people to dizzy. This can be a bad thing for retail companies trying to decide where to invest. From the beginning of my career at RSR, we emphasized practicality over hype. Retailers cannot afford to take huge risks. Nike, a company that is always praised for its innovation, has still not recovered from its decision to reduce wholesale sales. They continue their apology tour.
It’s always a good thing when something cool that seemed like it would be a great idea – such as NFT-based programs with virtual experiences that are tied in – survives the oxygen-deprivation stage. The more industry experts like myself, who can help companies identify the benefits of a program, the better.
It’s needed. The consumers won’t wait. The consumers expect to be able to shop seamlessly, using technology. If we only knew what these pesky customers were going to do, we would be better equipped to meet their needs.
What? Isn’t this what AI should do?