New research from Metapack, ShipStation and Retail Economics revealed at this morning’s Delivery Conference suggests shoppers could pay less in 2023 as inflation adds £18.2bn to UK costs to non-food sales, although volumes fell by 4.9%.
The value of UK non-food retail sales is expected to reach £249bn in 2023, but the 2.6% increase, or an extra £18.2bn of spend over the previous year, will be driven by rising consumer prices.
The Ecommerce Delivery Benchmark Report 2023, commissioned by Metapack’s operating company, Auctane, in partnership with Retail Economics, included a survey of more than 730 retail businesses in eight international markets. It found that 80% plan to increase the price of goods, with 40% predicting that rising costs will be the biggest challenge in 2023.
Cost pressures and changing shopping habits
Retail brands are facing rising input and operating costs, and margins are under so much pressure, it’s likely that some of those costs will be passed on to consumers, especially as merchants look for ways to find savings and maintain margins.
These challenges are matched by consumer concerns about the outlook for the economy and their personal finances over the coming year, with 66% of UK consumers citing inflation as their biggest concern.
As a result, 74% of UK consumers plan to change their shopping behaviour, with 34% saying they will shop only when necessary and 29% intending to delay or reduce spending.
UK retail sales volumes (units of goods sold) will fall by 4.9% in 2023 compared to last year as a result of plans put forward by consumers to reduce recessionary behaviour. This highlights the fact that shoppers are simply having to spend more to get less for their money, as retail inflation is expected to reach 7.5% over the coming year.
The research highlights that inflation is expected to add almost £260 billion ($319 billion) to retail sales in 2023 across the eight international markets included in the study.
However, many retailers remain optimistic about the trade outlook for 2023 as more businesses have a positive rather than a negative view of the economy and only 20% expect weaker consumer demand over the coming year.
Consumer sentiment and economic forecasts are largely at odds with retailers’ expectations for the coming year. Among small business retailers surveyed, 80% expect order volumes to be the same or higher (59%) in 2023, and a third expect order volumes to be up 10% or more.
Lower costs will be a top priority for both retailers and consumers in 2023. As our research shows, everyone will be trying to get the most bang for their buck, from operating costs to shipping and product costs. From offering a greater choice of delivery options, to having a resilient carrier infrastructure, to providing enjoyable delivery experiences, we believe that retailers who are able to deliver the most value will be the ones that come out on top.
– Andrew Norman, CEO of Metapack
Shipping priorities: cost over convenience
The study shows that in 2023, the cost of shipping is expected to be the most important transformational factor affecting retail. Nearly 35% of consumers rank value as their biggest priority when it comes to shipping, with speed and convenience becoming less important. That said, the operating cost pressures that businesses face can make this a difficult challenge. More than a quarter of retailers plan to increase the cost of shipping for their customers, while only 18% say they will not increase the price of products, shipping or returns this year.
As shoppers’ priorities shift toward value, our research shows that consumers would rather wait longer for delivery or compromise on delivery location than cost. Almost 30% of UK consumers said they would be happy to switch to parcel lockers or click and collect (BOPIS) services for their online orders.
2023 will be a difficult year for the e-commerce industry. As our research shows, the economic background is expected to have an impact on commercial operations and consumer purchasing behavior. However, in tough times, innovation often comes out victorious, and we expect the same to happen this year. We believe that omni-channel retail and delivery will become increasingly important as consumers move between online and offline as they search for the best deals. Merchants who continue to invest and adapt in technology to meet the changing needs of their customers are likely to command loyalty and do so well.
– Mike Heyers, General Manager, ShipStation Europe
Stability and secondary
Sustainability continues to be top of mind for many shoppers, with 79% saying they would consider green shipping options when ordering online. When it comes to buying green, 38% of consumers are more willing to accept longer delivery times and nearly 35% of consumers are likely to switch to out-of-home collection rather than pay extra to offset emissions, with only 7% of shippers wants to take into account. the latter.
Interestingly, consumer perceptions of ‘second hand’ are also changing, with retailers responding to growing consumer demand for economical and sustainable alternatives to buying new. More than a quarter of consumers plan to shop second-hand or use online resale markets more often in the coming year. This rises to 40% among consumers who are most likely to change their behavior in response to economic pressures. This suggests that concerns about the cost of living may inadvertently accelerate the transition to a circular economy.
Category and channel shifts
Shopping behavior varies across income groups and categories. Given this, luxury brands and discounters are likely to outperform at opposite ends of the market, leaving mid-tier retailers squeezed. But even for the wealthiest, our research shows that 61% still plan to tighten or reduce discretionary spending over the coming year.
The research shows that furniture and homeware will be most affected, with 43% of UK consumers intending to delay or reduce spending on these items. 35% plan to switch to cheaper brands of clothing, and 32% said they are looking for cheaper alternatives when it comes to electronics.
One in three UK consumers plan to spend regularly on health and beauty products, more than any other sector, with a further 14% opting to shop less rather than buy more often.
Across all non-food sectors, our research shows that a net share of consumers plan to shop online more than last year. As shoppers look for value, they can become more channel agnostic, regularly switching between physical and online to find the best deals. This could accelerate the transition to a hybrid retail future that combines the best of physical and digital.
Retailers will continue to face a toxic mix of pressures this year, as rising input and operating costs face a backdrop of weaker consumer demand, rising interest rates and changing consumer behaviour.
These conditions favor retailers with strong balance sheets that can invest heavily in price, leverage data to target their most valuable customers and win new ones, while efficiently utilizing stores to deliver a truly comprehensive offering.
Those with high levels of debt, weak pricing power and sitting in the middle of the market may find life very difficult.
– Richard Lim, Managing Director of Retail