The Top 5 Retail Trends to Watch in 2022
What does the future hold? If anything 2022 should feel more like the normal we have all been longing for. While the COVID-19 pandemic refuses to go away retailers are not sitting still waiting for the dust to settle. They have been working on finding new sources of revenue like digital advertising. They also have new challenges like supply chain disruptions that leave them hoping their inventory ends up in the hands of customers instead of stuck in shipping containers. Needless to say, there is no rest for the weary.
Innovation will also play a role next year as retailers try to sell more merchandise through social media channels, tapping into a trend popular in China known as social commerce. If you are curious about what to look out for in the retail sector in 2022 then consider these five trends.
1. Supply chain disruptions continue along with inflation. If you have gone shopping lately you have likely noticed things feel a little different. Either items are out of stock, online orders are slow to arrive, or prices are higher than what they used to be. Just when we thought the pandemic couldn’t inflict more harm it reared its ugly head again, to cause supply chain disruptions around the world. For instance, many clothing brands source their merchandise from factories in places like India, Bangladesh, and Cambodia which have experienced factory shutdowns due to the pandemic.
There is also a shortage of shipping containers as well as labour shortages. Dock workers and drivers required to unload cargo and transport goods are in short supply. Based on a PMI survey shipping delays “are the most severe ever recorded, going back a quarter century,” with more than 20 million containers held up in ports across the world. Retailers are only adding to the disruption by stock piling goods in the hopes of preventing out of stocks.
If that were not enough as countries like the United States emerge from the pandemic the demand for goods is spiking. Goods now make up around 40% of consumer spending versus 36% before the pandemic as consumers spend less money on services like hotel stays. “The fact is, the world shut down for the better part of 2020 and people have savings because they haven’t been out and about,” says Mark Cohen, director of retail studies at Columbia Business School. “They have a lot of disposable cash — and now that things are coming back to normal, they’re going to dispose of it.”
All of these trends have led to inflation. In October prices in the United States jumped 6.2%, the highest increase in three decades. In a sign of the times Dollar Tree is raising the prices of many of its items to $1.25. For more than 30 years Dollar Tree stayed firm with its pricing strategy to sell most of its merchandise for a dollar while other dollar stores raised their prices. Dollar Tree also expects to pay an extra $200 million in freight costs this year.
While some retailers have no choice but to raise prices as costs go up Walmart and Target are committed to keeping prices low. Both retailers want to maintain market share even if that’s at the expense of margins. In the third quarter of 2021 Walmart’s gross margin was down 12 basis points signalling to other retailers it can ride out this inflationary period and gain more customers in the process.
Experts expect these supply chain disruptions to last until mid to late 2022. “The Covid shock to the economy has caused disruptions that we’ll be working through over the next year [2022]. And, of course, Americans have not seen inflation like we have experienced recently in a long time,” said United States Treasury Secretary Janet Yellen. “As we get back to normal, expect that to end.” “The inflation rate will remain high into next year because of what’s already happened. But I expect improvement … by the middle to end of next year, second half of next year.”
2. Retailers try to take their share of the digital advertising market. Retailers see digital advertising as an opportunity for increasing revenues and profits with total digital ad revenues reaching an estimated $211 billion in the United States in 2021. This market has long been dominated by two tech giants, Google, with an estimated 28.6% market share and Facebook with a 23.8% share. But retailers now have this lucrative business in their sights.
Amazon is the first retailer to take a real shot at the Facebook-Google advertising duopoly. Over the last several years Amazon has created an advertising business worth an estimated $24.5 billion in sales making Amazon the third largest digital advertiser in the United States with an estimated 11.6% share. While Amazon’s ad sales are strong the margins are even better, much higher than the margins in its core retail business.
Recognizing Amazon’s lead in this area, in 2018 Walmart’s CEO Doug McMillon said: “we have a tiny ad business. It could be bigger.” Fast forward a few years and Walmart’s digital advertising business is still small, forecasted to reach an estimated $1.6 billion in 2021 but Walmart is committed to growing it. You have likely started to see more sponsored ads for products while shopping on walmart.com.
Retailers argue that: “Facebook might know what your customers like, and Google might know what they want, but only we know what they actually buy.” The deep shopper data and insights retailers have makes retailer websites a draw for advertisers. Walmart is ambitious, hoping to grow its ad business by a factor of 10 over the next five years.
Walmart isn’t the only retailer focused on growing its digital advertising business. Target, Best Buy, Carrefour, Kroger, Lowe’s and Macy’s are also working on building out this line of business. Other players in this market include delivery platforms like DoorDash and Uber and marketplaces like Etsy. “This is a category that is going to threaten Google and Facebook to a degree—it’s not going to wreck their businesses, but it is going to make the dollars they get for advertising much more competitive.” said Collin Colburn, a senior analyst at Forrester.
3. Retailers try to make social commerce mainstream. Social commerce is eCommerce that takes place on social media and it is seen as one of the next big shifts in the way we shop in North America. China is leading the wave with social commerce sales expected to reach $352 billion in China in 2021. One of the apps facilitating the growth of social commerce is Douyin. If you are not familiar with Douyin then most certainly you have heard of Douyin’s English equivalent, TikTok, which is also owned by ByteDance. Chinese consumers enjoy shopping while on Douyin, generating an estimated gross merchandise volume of $72 billion on the app in 2020.
Douyin’s success with social commerce is one of the reasons why retailers like Walmart are focusing on TikTok. “If you're watching a TikTok video and somebody's got a piece of apparel or an item on it that you really like, what if you could just quickly purchase that item,” says Doug McMillon, Walmart’s CEO. “That's what we're seeing happen in countries around the world. And it's intriguing to us, and we would like to be part of it.”
Last December Walmart hosted TikTok’s first shoppable event. The hour long event was called: the Holiday Shop-Along Spectacular. During the live event popular TikTok creators marketed Walmart products. Viewers participating in the event were able to buy products featured during the event without leaving the app. With over one billion users on TikTok each month the hope is to attract a younger audience. Walmart hosted another shoppable event on TikTok in May and is testing livestream shopping on Twitter later this month. Walmart has hosted more than 15 livestream shopping events this year.
Not wanting to be left out last week YouTube launched a weeklong shoppable video event called YouTube Holiday Stream & Shop. During the event popular creators were able to promote merchandise during a livestream while viewers were able to buy goods directly on YouTube.
This past spring and into the summer Facebook hosted Live Shopping Fridays. Brands including Sephora, Bobbi Brown Cosmetics and Abercrombie & Fitch hosted livestream shopping sessions on Facebook. Shoppers watching the live streams were able to tap on their screens to buy merchandise all without living the Facebook app.
This year, during the world’s largest online shopping event, Alibaba’s Singles Day, Li Jiaqi, a Chinese livestreamer sold $1.9 billion of merchandise in one day signalling the potential of selling merchandise this way. Purchases on social media haven’t caught on in the United States in the way they have in China but they are growing with social commerce sales expected to reach around $80 billion by 2025.
Do you like this content? If you do subscribe to our retail trends newsletter to get the latest retail insights & trends delivered to your inbox
4. Retailers shift to off mall locations. Despite the surge in eCommerce the foot traffic at many malls has recovered to close to pre-pandemic levels. Visits to indoor malls in the United States were down 2.5% and 6.5% in August and September of 2021 respectively versus the same period in 2019. That’s up from March of this year when visits were down close to 21% versus the same period in 2019.
Despite the recovery in mall foot traffic many retailers are planning to move their stores to off mall locations. Gap, a long-time mall staple, is planning to have 80% of its sales from its Gap and Banana Republic brands come from “off-mall, strip, outlet and online formats” by 2024. “Our strategy is rooted in moving away from traditional malls,” said Gap CEO Sonia Syngal. “We have sharpened our real estate strategy so that our stores will be where our customers want to shop today.”
Gap, like several other retailers, wants to take advantage of some of the benefits of off mall locations which tend to have cheaper rents and are closer to where consumers reside. Signet Jewellers which owns the Kay and Zales chains echoed a similar sentiment. “The foot traffic for off-mall locations is better than what we’re seeing in the mall, certainly in this time. It’s really important, and we see that shift continuing,” says Joan Hilson, Signet’s chief financial officer. Hilson says that its move off mall is “an opportunity for a better economic model.”
Macy’s, Victoria’s Secret, Bath & Body Works and Abercrombie & Fitch are also moving more stores to off mall locations. Occupancy rates in the United States are also signalling this change in direction. In the third quarter of 2020 the occupancy rate at malls in the United States was 87% versus 92% at off mall locations.
5. Consumers fuel the growth of buy now pay later. You don’t have to wait until your next pay check comes in to get that sweater you have been longing for. With buy now pay later, a service offered by many retailers you can get what you want now and pay later, often in instalments. Buy now pay later is popular with Millennial and Gen Z consumers who do not want to pay credit card interest or are not approved to use a credit card.
Buy now pay later also allows consumers to make purchases they would not normally be able to make with the service driving up conversion rates. “We launched Klarna on the Macy’s website in October [2020] and we’ve since scaled it across Macy’s, Bloomingdale’s and Bluemercury, both online and in stores,” said Jeff Gennette, Macy’s CEO. “With Klarna, we continue to see higher spend per visit and increased acquisition of new younger customers, 45% are under 40. Our goal is to convert all of these new customers to Macy’s loyal customers, who return for future purchases.”
One of the reasons retailers have jumped on the buy now pay later bandwagon is because it works. It is estimated that conversion rates increase by 20% to 30% when buy now pay later is an option and average order size jumps by 30% to 50%.
Buy now pay later is the fastest growing eCommerce payment option in the world but not everyone is happy about the growth of these transactions. Users of buy now pay later transactions are falling behind on payments and critics argue that consumers may not realize they are going into debt by paying for goods in this manner. A Credit Karma survey found that: “25% of millennials have missed one payment, while 30% of Gen Z respondents have missed two.” Despite these concerns it is estimated that more than 50% of all shoppers will use buy now pay later to facilitate a purchase next year.
Buy now pay later is expected to reach $680 billion in transaction volume globally by 2025 that’s up from $285 billion in 2018. But buy now pay later transactions are still a small share of all transactions, coming in at just 1.7% of all online transactions in the United States. Credit cards were 30.4% of all online transactions last year. But buy now pay later’s share of online transactions in the United States is expected to rise to 4.8% by 2024 to reach $79.7 billion. This growth is driving up the valuations of companies like Afterpay and Klarna that facilitate buy now pay later transactions. Afterpay was bought by Square earlier this year for $29 billion and Klarna is valued at $46 billion.