Behavioral health demands outpace supply, causing stress for providers, payers and patients
While the 2022 holiday season showed growth over 2021, the economic outlook remains uncertain. Joel Beherndt, Point B’s Executive VP, Consumer & Retail, helps put current conditions into perspective by sharing insights on the year ahead.
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Today’s employees want to work for climate and social justice-friendly organizations. In a time when talent retention is a chief concern among executives, you don’t want to lose this competitive hiring edge.
Regardless of market conditions, investors are demanding action on ESG – by pausing your ESG efforts you risk falling out of favor with your investor owners and may even experience decreased access to capital.
Overseas, the EU just announced its final approval of the Corporate Sustainability Reporting Directive (CSRD). In the US, it’s only a matter of time before the SEC finalizes its climate disclosure ruling.
ESG is now part of the social license to operate, and customers reward sustainable businesses with their dollars – by cutting ESG initiatives you risk alienating this influential consumer demographic.
You risk alienating
You may fail to meet investor demands
You’ll be left behind on emerging regulations
You could spur high employee turnover
No matter where your business operates, it’s going to be far
more expensive to invest in the necessary strategies to achieve compliance down the line than if you start getting ready now. With a possible economic downturn just around the corner, this expense may prove to be extra burdensome if you hold off.
by Point B Staff
Supply chains are changing as the challenges of a China-majority supply chain have become clear. Many retailers are establishing new sources and facilities around the world. Near-shoring to the U.S., Canada, and Mexico will be necessary for some areas of the supply chain such as semiconductors, though it will result in long-term cost increases, which could lead to some margin degradation. But leave it to the scrappiness of retail supply-chain ingenuity to find new sources and models to help offset costs.
In the realm of ESG, the stakes have increased. Consumers are drivers for the environment and social justice, and they express their preferences through retail brands, which they often experience more directly than B2B companies and other industries. This means retailers need to be at the forefront of positive change.
We work with many retailers that are far down the road on ESG and, if anything, they’re doubling down on social justice,
climate change, environmental impact, and sustainability.
For companies that are still sitting on the sidelines, it’s time
to assess your impact, develop your plans, and start acting
How Retailers Can Rise Above Uncertain Times For a Strong 2023
Holiday Season Takeaways
The good news is that consumers were ready to spend. This year’s holiday shopping season extended over a longer period, with rolling Black Friday sales starting as early as October. Overall, holiday spending (November – December 2022) was up 5.3%, slightly higher than the inflation rate.
Consumer spending declined more than expected from November to December, with sales falling 1.1%, a bit lower than the 0.8% economists had forecast. Those early sales made December numbers feel a bit subdued, making it important to consider the entire holiday period. Still, December 2022 sales increased by about 6% compared to December 2021.
It’s worth noting that higher prices drove some of that growth, rather than an increase in units sold. Some retailers resorted to deep discounts to increase sales and reduce inventories heading into 2023.
All told, many retailers reduced their inventory by year-end, which is paramount to being in a good position heading into 2023. End of year and quarterly earnings results in February will help tell the full story.
This Year’s Growth Drivers
All eyes are on how the economy and inflation will impact consumers. We’re quickly using up the surplus savings consumers built up through the pandemic with the help of federal stimulus, strong market returns, and low interest rates. The question is: How much are consumers willing to keep spending as their savings dwindle and the economy remains uncertain?
The global impact is still highly anticipatory, given rising interest rates and European geo-political challenges. That said, the decreasing value of the U.S. Dollar, reduced impact of Russian oil sanctions in Europe, and reopening in China should support many retailers engaged in these major marketplaces.
One big trend is the focus on retail health. Several of our clients are innovating in this arena, and we’re excited about what it means for consumers in terms of expanded healthcare access, innovation, and equality at reduced costs. There are four big players right now, including Walmart, Walgreens, CVS, and Amazon. We're also starting to see new market entrants, which will likely continue for some time with eventual consolidation down the road.
The economy is driving some workforce reductions, although unemployment remains low in the Fed's eyes, as further bolstered by January reports. It’s a mixed picture: While we see a pullback in some retail areas, there is reach in others. Challenges differ depending on each company’s segment, size, culture, operating model, and employee experience.
Most important, retail companies remain committed to their most critical initiatives. We’re encouraging clients to invest in core drivers that support modernization and growth, including the supply chain, ESG initiatives, and customer and employee experience.
Customer And Employee Experience
We see a lot of innovation driving large-scale transformation around customer and employee experience. While some workforce pressures are easing, unemployment remains low. QSRs (quick-service restaurants) and frontline retailers are experiencing incredibly high costs to hire, attract, and retain talent. There's about a $3,500 loss per individual restaurant or franchisee to replace a worker, and 42% of those workers leave their jobs within the first three months. Overall, 60% of people are emotionally detached from their job, and more than a third (36%) of workers will leave their job in 2023.
Employee dissatisfaction is much more than just a labor problem. Data shows how it directly translates to the consumer experience.
The metaverse continues to be a polarizing topic. While some retailers are pulling back on it, others continue to experiment. For now, there’s a lot of uncertainty about how meaningful it will be in the near term. Given our current economic conditions, I expect a near-term move toward more prudent and pragmatic spending and less loose experimentation.
As inflation eases, it’s also likely that retailers will be able to leave behind some of the price increases that were necessary for 2022.
What Can Retailers Leave Behind For Now?
Stay true to your values and your brand and don’t chase what others are doing. Instead, make sure you really understand your unique strengths and know how you’re going to bring them to customers and employees to set yourself apart. Establishing authenticity with customers and internal teams will help you cut through the noise of a crowded marketplace, building long-term brand loyalty and the strong performance that follows.
Our retail clients at the top of their game understand what their customers value and consistently show up in that way. Employees are excited and engaged behind their visions and direction. They're figuring out how to cut out the parts of the job their workforce doesn't like, so their teams can spend time delighting customers.
When you know who you are, you unleash innovation and build your brand by addressing trends and challenges in your own way. Even in this uncertain economy, we don’t see our retail clients sitting on the sidelines. They still need to advance innovation, and we expect that to continue. If you pull back right now, you're likely to have difficulty catching up later. The pandemic allowed people to say, “I've been thinking about what's important to me, and my priorities have changed.”
In the workforce, there’s been an astronomical number of people switching jobs, retiring early, entering new fields, or pulling out of the job market altogether. I think that corresponds with consumer behavior. People had time to reflect and consider how they want to do things differently moving forward. Retailers that are in touch with their customers and employees and can respond to this reset in an authentic way can set themselves apart in the marketplace.
Increasing Your Odds of Success During Uncertain Times
2022’s Retail Success Stories
Grocers, CPGs, and service-focused retailers outperformed general industry trends, and we expect that to continue. They’ve been able to pass along cost increases on essential consumer goods. Earnings results by Pepsi have further confirmed this data point. As consumers reprioritize how they spend their time in a post-pandemic world, supporting retailers such as sporting goods stores, travel goods shops and the like should continue to do well.
We expect inflation to begin encouraging shoppers to trade national brands for lower-priced generics, benefiting dollar and big-box stores. Yet earnings call comments by top leadership at Starbucks, McDonald’s, Mondelez, and others show this is still ongoing and price resiliency remains strong. We also expect home improvement retailers to succeed because the rapid rise in mortgage rates means more people will stay in their homes to hold the low interest rates they gained during the pandemic.
Brick-and-mortar stores saw a post-pandemic resurgence, which has some positive implications for 2023. Some traditional online retailers are opening brick-and-mortar options, including Amazon Style’s concept stores in Los Angeles and Columbus. And other companies are challenging themselves to create one-stop shops in the brick-and-mortar world the way Amazon has in the online world. Target and others continue to expand in that space andexplore new brick and mortar concepts. While we expect some overall retail tightening, trends in these areas bode well for 2023. Still, every retailer should monitor changing economic conditions and their impact on consumers as the year progresses.
About 90% of consumers say they’ve had a recent bad customer experience.
Fully 80% will quickly switch brands because of a bad experience.
And 43% say that a single bad experience is enough to make them switch brands for good.