Business resilience

Spring retail outlook

26 April 2023

‘Slowcession’ sees retailers double-down on business efficiency

As economists anticipate little growth to UK GDP in 2023, our latest The Real Economy survey indicates that middle-market businesses are seeking to mitigate the risks of a recession by making efficiencies within their organisations. 40% of respondents said they were enhancing operations, and reducing energy consumption, while more than a third (34%) were looking for cheaper supplies.

This, coupled with multiple ‘black swan’ events in the last few years, battering both consumer confidence and sales, mean that retailers are looking to operate smarter and leaner in 2023.

Major events: YoY retail sales volumes vs consumer confidence

In this article we’ll outline some of the ways retailers are tackling the prospect of recession and slow growth, and the areas of their business they’ll aim to enhance efficiency to encourage growth.

Driving productivity in a tight labour market

The Covid-19 pandemic hit the retail sector hardest in terms of reduced job numbers. According to the Office of National Statistics (ONS), the fall in jobs from December 2019 to December 2022 was 160,000. But how are businesses tackling this today?

There’s no one-size-fits-all approach to creating a productive workforce. But there’s one big factor that’s neither tangible or measurable, yet makes all the difference –employee happiness. A study by Oxford University published in 2019 found that workers are 13% more productive when happy.

But what does this mean in practice? Since the pandemic we’ve seen a shift in what workers want. The top concern is flexibility, whether that be working hours or location (ie remote working). For retailers, flexibility is a fairly simple request to meet for their head office staff. – But what about the shop floor employees also seeking a more flexible lifestyle and improved work-life balance?

Jobs in wholesale and retail trade industry

Combining customer service teams traditionally housed in call centres with the in-store team is one-way some organisations are attempting to achieve the balance their staff want. By creating one combined ‘customer experience’ team and combining responsibilities, retailers can deliver multiple benefits to the business and their staff. Staff that work in-store are given a combined role, with some days allocated to the shop floor, and others working from home troubleshooting customer queries online or by phone. This has the dual benefit of allowing staff flexibility in their working patterns, while providing customers interacting with the business online or by phone a highly knowledgeable customer service executive who has an awareness of the touch, feel, and fit of products.

Long-term, by harnessing the ‘customer experience’ model, retailers will be able to offer store staff enhanced development opportunities off the shopfloor. This is highly beneficial as UK employees are unincentivized to remain in shopfloor roles for the duration of their career due to the demanding nature of the job – both physically and mentally – and this creates churn within the workforce. The physical nature of the job, standing on your feet all day, and the pressure for employees to bring their ‘best selves’ to work five days a week can be a wearing prospect for many. By creating an enhanced career path that offers flexibility to traditional in-store roles, retailers will bridge the gap between their head office and in-store staff so that they can offer flexible working to a higher proportion of their total workforce. It may also go someway to easing perceptions within in-store teams that head office staff have better working benefits, which became entrenched post-Covid when store teams had to head back to shopfloor full-time while many retail head offices retained flexible working. This model of working could improve in-store staff morale and happiness, ultimately creating a more productive work force.

For the business there’s an additional cost benefit, too. Housing customer service teams in call centres is expensive. By cutting call centre overheads the business is achieving a huge saving. Giving store staff tech capabilities rather than investing in real estate is a better investment operationally, and in many cases will work out cheaper.

Rationalising supply chains paramount

Desensitising the business from China’s zero-Covid policy and political uncertainty in the region is a top priority for many retailers this year. And it’s clear when we compare China’s PMI through 2022 and into the start of 2023, with both India and Thailand’s, that growth in the region amongst manufacturers is muted. Whereas Thailand and India’s PMI saw growth overall.

Manufacturing PMI: China vs India and Thailand

Note: A Manufacturing Purchasing Managers Index (PMI) is based on a number of individual indexes. A reading above 50 indicates an expansion of the manufacturing sector compared to the previous month; below 50 represents a contraction; while 50 indicates no change.

Major brands like Apple have shifted some of their production to India, and according to India’s minister of commerce and industry, Piyush Goyal, Apple reportedly plan to manufacture 25% of all iPhones in the country in future . But the move has been beleaguered by difficulties due to poor manufacturing quality and additional logistical challenges. And so, despite vulnerabilities revealed by Covid-19 and subsequent events, retailers and manufacturers are finding it difficult to reduce their reliance on China’s manufacturing might.

While manufacturing in China may still be the easiest – and cheapest –option for many companies, India, Vietnam, and Latin America are emerging as viable choices for retailers, whilst Turkey and Portugal are proving popular for those looking to produce goods within Europe. When considering a change in the country of origin for production, several factors should be considered, including:

  • labour availability, including skills, wages and educational qualifications;
  • operating environment, taking into account political climate, legal and regulatory landscape, and economic and infrastructure factors;
  • cost analysis, including utilities, land and real estate rentals, employees, raw materials, and shipping costs;.
  • taxes, including duties, corporate taxes, personal taxes, amongst others; and
  • proximity to suppliers and the customer market, including analysis of freight options.

For cash-strapped retailers, moving manufacturing from China is an expensive process that may not seem an immediate priority as logistical obstacles ease. But failing to (at a minimum) diversify supply chains could be a costlier move in the long term and could leave retailers just as vulnerable to disruption as they were during the early pandemic.

You can read more in-depth suggestions to transform your supply chain in our The Real Economy Global Supply Chains report here.

The Generative AI revolution

ChatGPT is the buzz word of the moment across retail and many other industries when it comes to rapidly enhancing efficiency. But Generative AI – which Chat GPT harnesses –has a much broader scope than impressive natural language capabilities. Areas of application for Generative AI include:

  • data generation;
  • code generation;
  • text generation;
  • image generation;
  • video generation;
  • audio generation;
  • model generation; and
  • avatar generation.

The reason for excitement around ChatGPT is a blend of ease of use, it’s deep capabilities and the ability to draft responses that are articulate and cannot be distinguished from a human response.

So how are retailers currently harnessing Generative AI to create operational efficiencies for consumers and staff? Upgrading website chatbots to improve online customer experience is the obvious answer when it comes to consumer facing AI. But a personalised experience can go further than just a chatbot, as digital retailer Very has revealed in its latest statement on plans to enhance customer service.

News trend analysis: AI and ChatGPT 

Very have announced plans to transform product discovery to make it more personalised through a new partnership with US-based tech platform Constructor. The retailer will implement new search, browse, and autosuggest tools across its website and app using artificial intelligence (AI), natural language processing, machine learning and data. These tools will learn from anonymous individual interactions and collaborative behaviours to optimise the product discovery experience and provide customers with faster, more personalised results. In the longer term, Very will launch a personalised ‘quiz’ function. By answering a series of questions related to their preferences, interests and goals, customers will easily discover the right items for their needs across all product categories.

In time – probably quicker than we think –Generative AI will become the ultimate colleague. Not only able to answer customer queries in super quick time, without support from a human, but also for more high-volume, high-turnover tasks in business functions such as marketing and HR. Think about the thousands of product descriptions housed on a retailer’s website. It’s likely that a human has written every single one. In the future, retail marketing teams will be able to harness Generative AI to analyse product imagery and create the first cut of a product description. Content writing teams will ultimately spend less time on these repetitive types of tasks and focus their time on areas that deliver greater ROI to the business. The same goes for employee contracts. During periods of mass onboarding such as in periods of seasonal recruitment like Christmas, retailers will be able to use AI to generate employee contracts, completely changing their HR function.

You can read more about the Generative AI revolution and how it can support business operations in our latest articles covering:

With headwinds and slower growth ahead, it’s time for retailers to double down on delivering great customer service and making operational efficiencies within the business. Afterall the only thing certain in retail is change. Whether that’s through meeting changing consumer needs, or by generating new ideas to enhance operational effectiveness. The formula to success is never fixed.

The areas outlined above only scratch the surface of the areas for retailers to focus their efforts and make efficiencies within the business. If you would like to discuss tailored solutions, please contact our Head of Retail, Jacqui Baker.

Robyn Duffy
Robyn Duffy
Consumer Markets, Senior Analyst
Robyn Duffy
Robyn Duffy
Consumer Markets, Senior Analyst
 The Real Economy

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