In 2024, the retail industry stands at a crossroads.
Deloitte’s Global Retail Outlook Report sheds light on the pressing challenges and promising opportunities that lie ahead.
From tackling climate change impacts to using cutting-edge technologies, retailers are poised to make pivotal decisions that will shape the future.
Join us for this article filled with insights for businesses like yours that are looking to stay ahead in this dynamic landscape:
About the report
The Deloitte Global Retail Outlook 2024 is a study conducted by ColemanParkes, an independent market research agency, for Deloitte Global.
The research involved a survey carried out both over the phone and online between November 10 and December 7, 2023.
A total of 200 retail professionals participated, including high-level executives and senior decision-makers who are directly responsible for strategic initiatives within their companies.
The survey covered three main regions:
- North America, with 50 respondents from the United States.
- Europe, with 100 respondents from the United Kingdom, Germany, France, and other European countries.
- MEAA (Middle East, Africa, and Australia), with 50 respondents from the UAE, KSA, other Middle Eastern countries, South Africa, and Australia.
This study gathers insights from industry leaders to understand current trends and future outlooks in the retail sector.
The state of the global economy
A year ago, many feared that the world was headed for a new era of high inflation and a looming recession.
However, these predictions did not come true.
In 2023, inflation slowed down, major economies kept growing, and job markets stayed strong.
Now, it looks like the tightening of monetary policies might be over, paving the way for a global recovery.
Here’s a look at the global economy for 2024 by major regions:
United States
- The US economy has shown impressive resilience despite tough monetary policies.
- While these policies aimed to cool the economy and reduce wage and price pressures, inflation dropped mainly due to other factors, like the end of pandemic-related supply issues.
- High interest rates did impact the housing market and increased bankruptcies, but overall, economic activity remained strong.
- With the Federal Reserve likely done with raising interest rates, we might see rate cuts later in 2024. The tight labor market remains a challenge, but as more people join the workforce, wage inflation is slowing.
- The US economy is expected to grow in 2024, though at a slower pace than in 2023.
- Consumer spending will be driven by rising incomes and employment, and business spending will be supported by strong cash reserves and government incentives for technology and clean energy investments.
Europe
- In the Eurozone, inflation has dropped sharply over the past year.
- Despite this, the European Central Bank (ECB) is maintaining high interest rates and plans to stop buying bonds, which will raise bond yields.
- Germany, the largest economy in the Eurozone, is already in recession, but the ECB is focused on keeping inflation at bay by tightening the labor market.
- In 2024, the Eurozone is expected to see modest growth.
- Rising real wages may boost consumer spending slightly, but growth will be held back by high gas prices, tight fiscal policies, and weak credit market conditions.
China
- China’s economy grew slowly in 2023 because of several ongoing challenges, including problems in the housing market, decreased household wealth, and uncertain government policies affecting private sector investment.
- Exports have also declined due to global economic weakness and trade disputes with the US. Foreign investment has dropped sharply, and high debt levels are limiting credit market expansion.
- While China’s central bank has eased monetary policy, it hasn’t had much impact.
- Some experts suggest China is in a “liquidity trap,” where lower borrowing costs do not lead to more borrowing.
- With a shrinking working-age population and reduced internal migration, China’s long-term growth will likely be modest, impacting global exports and commodity demand, which could help keep global inflation low.
Rest of the world
Other markets also play a role in global growth.
- India is expected to be the fastest-growing large economy in the coming year.
- In the Middle East, low oil prices will lead to modest economic growth, but falling interest rates in the West could boost investment.
- South Africa faces serious challenges, including a troubled electric power market, leading to only modest growth.
- Australia will also see moderate growth, affected by China’s weakness limiting commodity demand.
Revenues and margins
The global retail industry, after facing a period of suppressed consumer spending and various economic uncertainties, now stands at a juncture.
With new technologies and business models on the horizon, retailers are rethinking their strategies to keep on growing long-term growth.
The decisions made today could define the retail sector for decades.
Current state of retail:
- Challenges: retailers are wrestling with increased business costs and reduced consumer spending power.
- Opportunities: there’s potential for a big transformation in the industry, which sets the stage for growth in the future.
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Financial outlook:
- Revenue expectations: the retail industry is optimistic about 2024, expecting revenue growth between 1% to 9%. European retailers are particularly hopeful and project the higher end of this range.
- Profit margins: a substantial 74% of retailers foresee an increase in operating profit margins. This reflects a strong confidence in the sector’s financial health.
Key growth drivers:
E-commerce profitability
- Current landscape: while e-commerce continues to boost top-line growth, profitability remains a challenge as a result of logistics and delivery costs.
- Strategic adjustments: retailers are investing in logistics infrastructures like fulfillment centers to better manage these costs. However, broader profitability from e-commerce might be more of a long-term goal.
- Technological innovations: advances in technology could improve e-commerce profitability over the next decade, but this also hinges on changing consumer behaviors, like the increasing demand for faster delivery.
Reducing returns
- Challenges: online returns, exacerbated by free-return policies, are a costly headache for retailers, complicating logistics and impacting margins.
- Strategies for improvement: retailers are looking into ways to reduce returns through better consumer education (e.g., sizing guides, product videos, virtual reality) and potentially charging for returns to discourage impulsive buying.
Diversification into higher margin revenue streams
- Utilizing assets: retailers are tapping into their customer data and advertising spaces to grow their retail media networks, benefiting from the shift away from third-party cookies.
- Expansion of services: many are also expanding their B2B offerings, from cloud services to logistics, aiming to build comprehensive platforms that boost their core retail operations and create new high-margin revenue channels.
The retail sector is poised for an evolutionary leap, with 2024 marked as a potentially transformational year.
The focus now is not just on navigating current challenges but also on seizing opportunities that promise substantial growth and innovation.
Thanks to using the available technologies and adapting to market changes, retailers aim to not only survive but succeed in the changing landscape.
What are the retailers’ priorities in 2024?
#1 Managing inflationary pressures and reducing costs
In 2024, companies are putting a big focus on tackling inflation and cutting costs. With the economic climate still uncertain, businesses are turning to new technologies like AI to help reduce expenses. And that’s even if it takes some time to see the benefits.
#2 Improving supply chain resilience
Less than half of retailers feel confident in managing supply chain disruptions. To address this, many companies, especially in Europe, are working on making their supply chains more efficient and less vulnerable. One in four retailers is even considering acquiring new logistics capabilities to improve their operations.
#3 Becoming more environmentally sustainable
Consumers are showing more interest in sustainability and new regulations. As a result, retailers are prioritizing environmental, social, and governance (ESG) issues. This year, companies are investing heavily in developing and executing their sustainability strategies.
#4 Growing market share
Despite the challenges, businesses are committed to expanding their market share across different regions. This involves not just overcoming current obstacles but also strategically positioning themselves for long-term success. Companies are looking at new revenue streams in related industries to boost their growth.
#5 Maintaining or increasing operating margins
The changing market conditions and ongoing inflation pressures are pushing retailers to reinvest in their businesses. Whether it’s keeping prices low or investing in new technologies to future-proof their operations, maintaining or increasing operating margins is a key priority. This gives retailers the flexibility to make strategic investment decisions.
Systemic challenges and opportunities
2024 is a pivotal year for the retail industry.
Retailers are facing several systemic challenges but also have exciting opportunities to take advantage of.
Let’s see them now:
Challenges
1. Climate change and sustainability
- Climate impact: climate-related disasters have increased, and 2023 was the hottest year on record. These changes affect retail operations, from physical assets to supply chains and insurance costs.
- Rising costs: 68% of retailers believe climate change will increase business costs over the next five years.
- ESG practices: adopting sustainable practices is essential. Technologies like blockchain are becoming popular to improve supply chain transparency and meet consumer and regulatory demands.
- Regulations: new regulations, such as the Corporate Sustainability Reporting Directive (CSRD), require companies to be more accountable and transparent in their environmental practices.
2. Labor shortages
- Persistent shortages: advanced economies are experiencing ongoing labor shortages, exacerbated by the COVID-19 pandemic.
- Hiring and retention: retailers are focusing on hiring and retaining talent, especially in Europe, where the competition for skilled workers is intense.
- Automation: investing in automation and AI is becoming essential to manage workforce challenges and boost productivity.
3. Supply chain pressures
- Post-pandemic impact: the pandemic exposed the fragility of global supply chains. Retailers are now prioritizing resilience and diversification.
- Geopolitical shifts: companies are reducing their dependence on China by shifting operations to Southeast Asia, India, and Mexico.
- Government influence: governments are promoting reshoring of high-tech manufacturing and clean energy investments through subsidies.
Opportunities
1. Health and wellness trends
- Consumer focus: health and wellness are becoming increasingly important to consumers. Personalized nutrition and fitness tracking are on the rise.
- Digital goods and services: spending on health and wellness apps and services is growing, particularly among younger consumers.
- Weight loss drugs: the adoption of drugs like GLP-1 for weight loss is expected to change demand patterns in various product categories.
2. Technology shift from mass to micro
- Personalization: retailers are moving from mass marketing to personalized experiences. This includes targeted marketing and tailored in-store and online experiences.
- Efficiency: technologies like AI are improving forecasting, inventory management, and customer experiences.
- Quick delivery: the demand for same-day and next-day delivery is increasing, driving the growth of automated micro-fulfillment centers.
3. Power of artificial intelligence
- Generative AI: AI is set to change retail by creating personalized content, and improving data analysis together with predictive modeling.
- Broad applications: retailers plan to use AI for supply chain visibility, personalized recommendations, workforce management, and more.
- Holistic approach: integrating AI across various departments can drive efficiency and innovation, but it requires a strategic approach to avoid silos.
Conclusion
The findings from Deloitte’s Global Retail Outlook Report highlight the resilience and adaptability of the retail sector.
Once you address the challenges and make use of the opportunities, your business will drive growth and innovation.
As we move through 2024, let’s use these insights to tackle the complexities of the market and build a sustainable, prosperous future.
Now is the time for bold decisions and strategic actions that will define the next decade of retail.
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