2022 – A New Era for Retail

Incredible retail changes have occurred over the past two years — some will phase out, but many are now so ingrained into consumer behavior that they will linger. Spending in the current normal is not “normal,” at all. Similarly, looking at the year ahead is less about planning for emerging trends, and more about preparing for the changes on the horizon.

Here are the critical pieces to watch:

Supply disruptions have been a big story since the beginning of the pandemic. First, it was the hoarding of essentials, followed by the rise of COVID variants that caused disruptions to the workforce and products. We are still playing supply catch-up in many industries, only now the consumer reaction will be different. As we once again find empty shelves meant for toilet paper and other essentials, the vision is less jolting and sends shoppers into a “here we go again” response.

Fewer promotions is a new retail dynamic consumers are adjusting to, and one many retailers hope will remain in play, so they can match or beat 2021 comparisons. However, when consumer demand declines, as it is likely to do by mid-year (if not sooner), many retailers will once again need to incentivize consumers to spend and they will resort to promotions to do so.

Pricing challenges continue. Many products have seen prices increasing as high as 25%, but as demand settles back, and as supplies catch up, prices will likely fall between 10% and 15%. Similar to what we’ve seen recently with gasoline prices, the result will be prices above pre-pandemic levels, but below the highs of 2021.

Consumer lifestyles have changed significantly over the past two years, and many of those changes will remain. Even when we return to workplaces, the pandemic lifestyle will not likely shift back to what it was before the pandemic. Spending more time at home, and everything we now do at home (e.g., cooking, cleaning, working, and entertaining) will continue to be a bigger part of our daily home-lives, and elevated demand for related products will continue, based on need and replenishment cycles. Upgrades to home entertainment products will also maintain a good pace of growth, while other peak-pandemic investments will pull back until there is a need to upgrade again — opportunity will be fueled by innovation.

Spending by income levels will shift, as many forms of government stimulus fade away, leaving much of the retail industry’s growth in 2022 to come from upper-income households. While this sounds like an advantage for luxury and high-end products, it also creates challenges, as aspirational consumers, who are no longer able to reach up, will be missed by the upper market.

In-store shopping will continue to rebound, and consumers will reward retailers for shopping experiences and benefits. The convenience of online shopping will become less of a priority but should not be ignored. Consumers have learned to like it and are willing to pay for it. Ecommerce is not likely to grow at the rates we noticed in the first year of the pandemic or maintain levels reached at the peak.

Spending on experiences will return and will, at some point, impact spending on general merchandise. But multiple and long-term commitments to experiences will likely remain low, as consumers tread lightly when returning to social progression, travel, and vacations — commitments to such behaviors will also be much less carefree than they were before the pandemic.

As consumers continue their new cadence of consumption, retailers and manufacturers will need to work to persevere over the new set of changes coming in 2022. Even so, opportunities will come knocking. Will retailers and brands be there with new products, ample product stock, and reasons for consumers to buy?