Business Maverick

THE WAY FORWARD

In the face of global headwinds, retailers should embrace AI solutions, report recommends

In the face of global headwinds, retailers should embrace AI solutions, report recommends
(Photo: Unsplash / Dieter de Vroomen)

Costs, declining spending and supply chain volatility are weighing on retailers’ profits.

Another year, a whole new set of problems. A global survey of retailers has shown that this year’s biggest concerns are rising costs, declining consumer spending and supply chain volatility.

The research was conducted by the Boston Consulting Group (BCG) and the World Retail Congress. It revealed that although the global economy was starting to stabilise, the current state of affairs was not only unsettling, but it was even more difficult than before Covid, as input costs were at record highs, operational uncertainty was incessant and the geopolitical crises appeared to be ceaseless.

More than 550 senior leaders from 12 retail sectors were surveyed for the report, titled Amid Uncertainty, AI Gives Retailers a Path to Resilience, which explores retailers’ outlook for 2023 and how artificial intelligence (AI) can provide solutions for their most pressing business concerns.

About 13% of retail leaders said their organisations were investing in longer-term strategies such as AI-powered solutions to tackle these difficulties, with most focused on short-term fixes such as increasing prices and running marketing campaigns.

Chris Briggs, managing director and global head of retail at BCG, says the headwinds of the past few years may be easing, but the world is far from calm.

“Although the first signs of… optimism are evident throughout the industry, retailers know that they must achieve greater resilience if they are to cope with looming uncertainty and gaps in their capabilities.”

He said issues such as consumer confidence, rising costs and supply chain volatility were top of mind regardless of the retail sector, size or geography, but some long-term challenges such as labour availability had become less acute.

Not only are retailers across all sectors and geography having to grapple with industry and technological change, but blanketing these issues is a series of geopolitical, economic and social factors, adds Ian McGarrigle, chair of the World Retail Congress. The highest inflation levels in 40 years, supply chain challenges and a cost-of-living crisis, plus the threat of recession in many economies, had completely changed the operating conditions for retailers.

There are signs of optimism, though: globally, 45% of retailers expect the economy to grow slowly in 2023, 20% of retailers think it will grow rapidly and only 11% believe it will decline either slowly or significantly. But despite the relatively hopeful outlook, there are significant challenges, as costs for retailers (as measured by the producer price index, or PPI) are much higher in 2023 than they were before the pandemic.

PPI increases have also outpaced cost increases for consumers and created continued operational challenges. Freight rates have remained quite high. As of 30 March, despite declining significantly over the previous few months, shipping container freight rates this year were still 21% above the average in 2019.

Dramatic spending slowdown

Economists expect a dramatic slowdown in the global growth of real inflation-adjusted consumer spending, from 7.9% in 2021 to 1.7% in 2023. About 72% of retail respondents anticipate increased consumer sensitivity to prices in 2023, which limits retailers’ options to recover and combat high input costs, and also shifts consumer behaviour towards specific products and consumer segments.

How do retailers cope with the rising cost of goods? Most were forced to increase prices: 55% of respondents said their organisations were raising consumer prices, and 52% were renegotiating with suppliers.

How are retailers planning to address these concerns? Solutions range from one-time short-term fixes to augmented reality predictive tools and agile network investments to address their concerns and build a sustainable long-term structural advantage.

BCG and the congress offer some “quick wins”, saying that AI has vast potential to address retailers’ immediate concerns about costs, consumer spending and the supply chain, while also unlocking strategic and financial value along the entire value chain, but that the prospect of introducing AI into business can be daunting.

“We recommend that retailers making plans for their AI journeys take a focused business lead approach, starting with addressing today’s concerns and delivering quick wins along the way.”

Tiffany Yeh, BCG managing director and partner, and co-author of the report, says that the new, post-pandemic retail environment is more challenging, complex and competitive than before.

“The vast majority of retailers are overlooking an opportunity to embrace AI-­powered solutions. It is now a matter of acting today to harness this advantage to drive the business into the future.” DM168

This story first appeared in our weekly Daily Maverick 168 newspaper, which is available countrywide for R25.

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