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Those eager to see brick-and-mortar's demise thought they'd had the last laugh in 2020. Then 2021 happened.
Last year saw twice as many brick-and-mortar stores open than close, a reverse in direction from the rash of closures that occurred in 2020. By virtually every metric you could conceive, shoppers were back in stores and spending money en masse in 2021.
I don't believe this degree of momentum simply dissipates, especially when you examine the underlying drivers of retail's 2021 rebound. And yet, we know there are significant challenges retailers face in 2022. With each of those challenges, I believe, comes opportunity.
Prices are on the rise, and supplies have been spotty for many retail segments. With inflation, though, has come heightened demand. Consumers are on the prowl for value, meaning that retailers can't bank on indiscriminate spending. Retailers that find unconventional ways to deliver value, though, may attract large swathes of price-conscious customers.
I think diminished purchasing power will drive customers toward experiences just as much as products. Retailers that provide those experiences will likely find many new shoppers entering their stores. With a moderate tweak of perspective, retailers can find opportunity in the most tumultuous periods of the coming year.
Demand Remains Strong Amid Inflation and Supply Crunches
During a record-breaking holiday retail season, Matthew Boss, head of department stores and specialty softlines at J.P. Morgan, observed that "demand is exceeding supply" in the fourth quarter of 2021. While this imbalance stems partly from ongoing supply chain issues, it's also an indication of consumers' willingness to buy now, buy again and then buy some more.
Despite widespread economic hardship, shoppers are spending like their money is going out of style — in some sense, it is going out of style. Many consumers see rising prices and the declining purchasing power of the dollar as a trend likely to continue. Some have responded by buying more goods with tangible, lasting value.
Retail sales rose at a faster-than-expected rate in October 2021. While inflation certainly presents serious concerns for everyone, consumers' heightened motivation to buy should, at least for now, be music to retailers' ears. So long as your organization provides items of value, I think demand should remain strong for the foreseeable future.
Historically speaking, inflation reaches the point of diminishing returns. Retailers will have to cross that bridge when it presents itself. For now, your focus should be on keeping shelves stocked, providing value where you can and capitalizing on shoppers' desire to exchange depreciating dollars for intrinsically valuable goods.
Value Is a Major Concern for Shoppers — Retailers Who Provide It Stand to Gain Loyal Customers
While consumers are motivated to buy, they're not spending indiscriminately. In fact, rising prices mean that consumers are as value-conscious as ever — and will likely only become more discerning should inflation take further effect.
Price will always be a factor in how shoppers perceive value. Increasingly, though, consumers see value in, for one, values. IBM found that 44% of consumers describe themselves as purpose-driven shoppers. They take pride in supporting brands that align with their values. In other words, a brand's values — properly aligned and authentically presented — offer value.
We also know that customers place a premium on experiences. When a shopper doesn't necessarily have the money to buy everything they'd like, they'll look more critically upon the features of your stores that aren't the products. As a consumer decides which stores to visit, they'll think: Does this store provide worthwhile experiences outside of the products it sells?
Discretionary Budgets Will Tighten, Placing a Premium on Experience-Based Shopping
Economists are predicting that the rising cost of essential items — gas, groceries and energy — will take a serious toll on discretionary spending in 2022. Eventually, the effects of tighter discretionary budgets will show up in retail sales figures. Organizations must brace for this reality, but also seek an actionable silver lining.
The silver lining may just lie in your ability to offer novel experiences at no direct cost to the customer.
Experiences in brick-and-mortar stores have become so important that they've spawned their own category — appropriately titled experiential retail. Pop-up stores, topical in-store classes, virtual reality experiences, and community events are some of the burgeoning channels of experiential retail.
Shoppers have proven partial to experiential retail. A study found 60% of consumers say you should allot more of your stores to experiences than products, while 81% will pay more if your experiences enhance the in-store experience.
Don't be surprised if in-store experiences — rather than the products we've so long held as synonymous with retail — define brick-and-mortar in 2022. The quality of your in-store experiences, just as much as your prices, could drive your organization's success or underachievement in the coming year.
Conclusion
While we can't assume 2022 will bear all the same retail successes of 2021, there are reasons to remain optimistic about brick-and-mortar. Consumers appear highly motivated to get their hands on quality goods, and purchasing items in-store remains the most immediate way to shop. Furthermore, budget-conscious consumers want to know that they're getting high-quality items in exchange for their money, and in-store shopping remains the best way to see, feel and try items before purchasing.
While inflation will be a key factor in 2022's consumer climate, it will be far from retailers' only focus. Advances in retail technology are tantalizing in their own right. Look for new, exciting in-store experiences at retail locations of all stripes. From electronics to apparel and beauty products, many retail niches are deploying innovative use cases for virtual reality and other emerging technologies. Each of these experiences suits a pressing need: bringing greater value to the customer.
There are many reasons to bet on brick-and-mortar retail in 2022. Even the challenges retailers face double as reasons for optimism.