After unprecedented changes to the retail environment over the past few years spurred on by the once-in-a-century pandemic, the state of the retail industry remains vigorous and dynamic. The 2022 holiday season concluded a record breaking year for retailers, with National Retail Foundation data showing sales grew to $4.9 trillion.
But this historical sales growth isn't leading to complacency across the industry. Changing consumer preferences and uncertain economic conditions are putting retailers on their heels, forging new challenges to meet consumer expectations and remain solvent amid the competitive environment.
As they plan to address these challenges, specifically around customer experience, U.S. retailers are focused on key areas, including communication, product line optimization, and content creation. For retailers, implementing the right technology tools will also be key to making the adjustments needed to improve the customer experience over the next year.
Customer retention in 2023
A recent retail outlook survey from Avalara uncovered what retailers are prioritizing and planning for in 2023. At the top of the list is customer retention, with 45% of retailers from the U.S., UK, and India reporting that attracting and retaining repeat customers is their main customer experience challenge. While attracting and retaining customers has always been a priority for retailers, many are focusing on innovative strategies to keep customers coming back.
Communication is going to be the key to retaining customers. The highest percentage (56%) of survey respondents noted that optimizing how they communicate with the customer directly is top of mind for 2023. Retailers also note they will focus on optimizing their product line to reach new customers (50%) as well as leveraging content creation to improve customer engagement (49%) and personalizing the customer experience across channels (48%).
Another key component to customer retention retailers is investing in technology to improve the customer experience.
Automation becomes non-negotiable for retail success
Technology investment remains a critical component of business success, as 63% of U.S. retailers polled plan on investing in technology to improve the customer experience. Like with most high-traffic periods, retailers reflected on the 2022 holiday season by wishing they had invested in the right technology to meet demand. A total of 87% of retailers in Avalara's retail outlook survey wished that they would have invested in technology ahead of the holidays, with 64% noting technology would have better forecasted demand and 61% stating automation tools would better help to streamline shipping and logistics.
Another key area of investment among businesses is technology to better understand tax and customs obligations, with 56% of U.S. retailers pining for these solutions in 2023. Automating functions like tax and customs obligations is a critical part of the customer experience. In addition to helping retailers become more efficient, leading to greater focus on higher value customer-facing tasks, these automated functions help provide a seamless checkout experience for consumers by showing the full cost of an order, so customers know what to expect before they buy. Charging the wrong tax rates or not communicating the full cost can cause customer frustration and negative reviews, harming a retail brand and ultimately affecting sales.
While it may seem like it's far away, the 2023 holiday season will be here before we know it. Now is the time to implement the tools and technology to help forecast demand and automate the customer experience journey, as these solutions often take several months, and even years, to integrate and optimize.
Meeting customers where they are
One of the biggest themes both from the recent survey and last month's National Retail Federation Big Show in New York is that omnichannel commerce is accelerating. If retailers haven't figured out an omnichannel strategy yet, now is the time. If they have already implemented an omnichannel strategy, now is a good time to revisit the data to see what is working and double down on those items. For strategies that have poor or negative performance, evaluate and determine if these are worth the time and effort to continue.
Avalara's retail survey found 87% of respondents across all regions said their omnichannel strategy impacts how they think about the future of their business, and 45% plan on investing to expand sales channels in 2023.
One of the biggest channels ripe for growth is the metaverse — with 86% of retail businesses across the U.S., U.K. and India believing the metaverse will become an important part of their operations in the future. Gartner predicts that by 2026, 25% of people will spend an hour a day in the metaverse, playing games, interacting with friends, and more, including partaking in retail therapy.
After this recent period of historical sales, retailers are embracing new opportunities to get creative and grow. Amid an unpredictable economic environment, 2023 will be a year where the industry will have to embrace innovative solutions to deliver a quality customer experience by focusing on key areas to improve customer retention, including investments in automation and successful omnichannel strategies.