Costly Fulfillment, Fussy Consumers To Tighten Squeeze On Retailers

Image above: Best Buy's click-and-collect service

Sorry, retailers -- it looks like there's nothing close to a "new normal" heading your way. In its just-released industry forecast, Deloitte predicts plenty of volatility ahead between inflation, geopolitical strife and financially pressured shoppers.

Most pronounced, is the growing cost of that “last mile” -- the pickup, delivery and shipping costs that put purchases into the shopper's hands. Combine that with the increased demands of consumers, who want frictionless experiences and the lowest possible prices, and it's likely profits will shrink.

Just one-third of the 50 retail execs in Deloitte's survey are very confident about maintaining or improving profit margins. Six out of 10 say inflation will raise operating costs. They are doubtful they can keep passing those costs onto consumers much longer. And they're also convinced that the weaker economy will continue to slow consumer spending.



"Consumers expect the best price in the most convenient way possible," Deloitte writes. "To compete, retailers have rolled out the actual (and virtual) red carpet, offering fast last-mile services like curbside pickup and same-day delivery, personal shoppers, fit predicting tools, and payment plans."

Those services continue to pump up the cost of finding and keeping customers.

The three trends likely to have the most impact on retailers, pressuring sales:

*A slowing economy, bolstered by a relatively healthy labor market.

*Inflation that continues to lower consumer purchasing power, despite some gains in income. Deloitte says that although earnings have increased by 8.3% since December 2020, real earnings have declined by 5%.

*Continued increases in people's spending on services, marked by the return to bars, restaurants, vacations and sporting events. To pay for these, people continue to dip into savings.

"Overall, we expect real personal consumer expenditures on durable goods to contract by 1.8% in 2023," Deloitte says in the report, while spending on services is likely to rise 3.6%.

Additionally, quite a few retail brands will suffer compared to last year, when people were still in pandemic-inspired nesting mode, sometimes bolstered by government stimuli.

Still, Deloitte insists the outlook isn't all bad. The retail roller coaster of the last few years "should give executives confidence in their ability to weather the next storm."

Stores' goals should be "to drive more profit from the curated experiences, last-mile options and conveniences that retailers rolled out—all at a time when the purse strings may need to tighten."

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