It’s that time of year to cast our gaze back on the trends of 2023 and consider how they are poised to influence the landscape of 2024.
With the rise of generative AI, new technology is top of mind. But 2023 also saw retailers leveraging new channels and new products to reach and delight customers.
As Icertis’ industry experts in retail, here are the trends that stood out to us, and some prognostication on what they mean for the retail industry in the year ahead.
Trend 1: Using AI to Generate Value from Data
Generative AI has made remarkable strides this year, transforming how businesses operate and interact with customers. Indeed, it has become a technology that retailers cannot afford to ignore: According to a recent Icertis survey, 50% of business leaders expect generative AI to impact their bottom line in 2024, and all indications are that the impact on retail will be particularly pronounced. McKinsey projects the impact of generative AI on the retail and consumer goods industry as $400 billion to $660 billion, among the highest of all industries.
Given the public-facing nature of retail, most of the “noise” around generative AI has focused on the front-end of the business and how it will impact interactions with the end consumers. But we predict the bigger impact of the technology will ultimately be felt in the back office.
Look no further than Walmart’s big bet on generative AI to help 50,000 corporate employees automate “monotonous, repetitive tasks, allowing more time and focus for improving the customer/member experience.”
Walmart should be commended for jumping into generative AI with both feet, but automating routine tasks is just the start of what this technology can deliver. Generative AI can also help retailers find value in their data that is simply too time-intensive to surface manually. For example, by using generative AI tools to analyze and optimize contracts, pricing, incentives, and revenue share, retailers can extract more value from their data and orchestrate intelligent customer experiences.
In its 2022 Worldwide Global DataSphere Forecast, IDC notes that organizations currently only extract 38% of value from the data they have, adding that generative AI is giving retailers the assist they need to centralize and utilize significant value.
We anticipate that in 2024, forward-looking retailers will differentiate themselves by turning the power of generative AI onto the data they have across their enterprise to generate new value.
Trend 2: Combat Shrink with Tech
Surges in retail crime, violence, and theft have made recent years difficult in retail. The National Retail Federation reports that shrink grew from $93 billion in 2021 to $112 billion in 2022—an increase of 20.4. Industry watchers expect 2023 figure to be similarly bleak.
One of the major contributors was organized retail crime (ORC), which involves groups of professional shoplifters who steal and resell stolen goods. Retailers reported a 26.5% increase in ORC incidents in 2022, with an average loss of $719,548 per $1 billion in sales.
In this generally grim story, there is a silver lining – technology. To help combat this problem, retailers are investing in various loss prevention solutions, such as artificial intelligence, video analytics, radio frequency identification, autonomous security robots, and more, to monitor and prevent losses in real-time.
For example, Lowe’s Home Improvement lost $1 billion in shrink in 2022—about 1% of their top-line sales. They used AI to track and secure products with high street market values, such as power tools. These and other initiatives helped reduce their shrink rates and increase their profits in 2023.
A less obvious way retailers can leverage technology to combat the impact of shrink is by extracting data from agreements with CPGs. In many contracts, suppliers will agree to pay into the loss prevention budget – the idea being that the CPG loses out on revenue if their items are stolen instead of purchased. Yet retailers often fail to track those commitments from CPGs because the right teams don’t have visibility into the agreements -- meaning money they are entitled to goes uncollected. That’s as bad as shrink! Technology can help retailers extract all their commitments from suppliers—loss prevention related or otherwise—and track them to completion to ensure they get the help they need to combat crime.
Trend 3: The Rise of Private Labels – And Sourcing Complexity
The retail and CPG industries witnessed strong growth in private label products this year—offering consumers high-quality products at lower prices than national brands.
Private label sales by companies such as Target, Dollar General, and Kroger reached nearly $230 billion, an increase of 11.3% from 2021. These increases were fueled by economic downturns, innovation and differentiation of private label products, and the expansion and diversification of private label assortments by retailers. Kroger, for example, launched 223 private-label products in Q1 alone.
While the shift to private label has a lot of upside for retailers, it often increases workload - especially around securing contracts with the right suppliers.
While the shift to private label has a lot of upside for retailers, it often increases workload—especially around securing contracts with the right suppliers. As such, the greater the focus on creating one’s own brands, the greater the need for a contract management solution that helps streamline the supplier onboarding process and helps maximize the value of every dollar spent.
Trend 4: The Rise of Retail Media Networks – And Marketing Complexity
Retail media networks (RMN) leverage first-party data to deliver relevant and effective ads to consumers across online and offline channels. This trend is here to stay; they are a booming business for retailers and brands. eMarketer observes that retail media spend surpassed $40 billion in 2022 and is expected to reach over $60 billion by 2024.
Global spending on retail media is projected to grow by 10.1% in 2023 to $122 billion, making it the fastest-growing media channel. Forrester reports that one-quarter of retailers are generating more than $100 million in revenue from their RMNs.
BCG agrees, adding that RMNs offer high margins for retailers, ranging from 70% to 90%, While some third-party providers remain, many retailers have begun to take most of it in-house to capitalize on the huge margins.
Similar to private labels, while the upside is clear, it does introduce new complexity that retailers need the infrastructure to support. For example, when you create a new sales team, it increases the number of contracts that are generated. Contract management provides the foundation critical to helping retailers remain nimble and target their customers better.
More in 2024
In 2023, retail and CPG companies leveraged new technology, products and channels to reach and delight customers. In 2024, we expect the top-performing companies to put the necessary infrastructure in to better operationalize these shifts so they can realize their full potential. This includes realizing the full potential of the contracts they have with all the trading partners they work with to carry out this transition.
To learn how Icertis can help you realize greater value from your contracts, visit our industry solution page: Contract Management Software for Retail & Consumer Goods | Icertis