What: While global revenues grew in 2021 as life began to return to normal post-pandemic, geopolitical issues and macroeconomic strain caused expectations to turn dismal in the later part of 2022 leading to an uncertain retail landscape for 2023.

Why it is important: Inflation, supply chain disruptions, rising costs, an energy crisis and increasing scrutiny on communication are leading to shifting consumer behaviours and a more challenging landscape for retailers and brands to navigate, accelerating the need for agile and clever strategies.

Inflation and geopolitics have surpassed the health crisis on the list of retailers’ concerns; however, this is a regional issue as the US and the Middle East remain relatively unaffected. This is predicted to result in new havens of growth, which will require that brands further localise designs, marketing and merchandising to attract new customers. As well, their scenario planning will need to factor in more than financial risks and opportunities.

Supply chains are being re-evaluated. Companies may choose to team up with manufacturing partners, increase nearshoring to better respond to fast-shifting consumer demand or lean more heavily on data analytics and technology to manage inventory. 75% of BoF and McKinsey’s survey respondents stated that they aim to simplify inventory by reducing the number of products and styles, while 65% plan to adjust the balance between seasonal and basic items in assortments.

Addressing consumer behaviours and demands will vary and become heavily influenced by income. Consumers will likely cut non-essential spending yet remain inclined to shop in-store leading to a decline in online DTC. In addition, consumers are increasing their sustainable and genderless purchases which is causing a need for changes in communication, a recent sore spot for brands and retailers as greenwashing crackdowns increase. With operational costs increasing as well, reputational damages or fines become a greater threat to stability. Budgets are still expected to shift toward alternative channels that could generate a better return on investment than paid social media ads, such as retail media networks, that can build stronger brand communities.

With behavioural shifts and financial strain, retailers should optimize their operational strategies to adapt merchandising, distribution channels and supply chain reactivity to ensure positive growth in the uncertain year ahead.

Navigating uncertainty in 2023: BoF’s State of Fashion report