Retailers are optimistic about their prospects and the future of physical stores. But they face growing risks in a highly challenging and complex market, driven by disruptive forces such as social commerce, artificial intelligence (AI) and the metaverse, according to WTW’s Global Retail Risk Outlook 2024.
WTW (NASDAQ: WTW), a leading global advisory, broking, and solutions company, surveyed 700 senior decision makers in food and supermarkets, luxury and fashion, department stores, health and beauty, electronics, home and DIY and online-only retailers, to understand how the sector sees the future and its risks, challenges and opportunities.
Key findings include:
- Physical stores are here to stay: As consumers continue to value the in-store experience, 84% of retailers say they will have a mix of physical stores in 3-5 years’ time. Surprisingly, that includes 7% of online pure-play businesses, who have no physical footprint today.
- AI a gamechanger?: Artificial intelligence is viewed as a pivotal opportunity, with 48% expecting it to revolutionise retail operations. However it comes hand in hand with increased risks. More than 4 in 10 (43%) of respondents identified cyber threats as significant business risks and 45% named rapid changes in technology among their greatest obstacles to achieving strategy.
- Reputation risks are increasing: The danger to a retailer’s brand and reputation was identified by 50% of those surveyed as the greatest risk facing the sector in the next three to five years. The rise of the influencer and the popularity of celebrity endorsements opens brands up to social media controversies.
- Tough customers: Consumers have become more elusive and harder to please, increasingly expecting a seamless experience. Retailers are looking to technology to provide a more personalized, seamless service, with 52% naming improving the customer experience among their top strategic priorities for the next two years.
- Hard to get the right insurance: As risks increase, firms face a raft of challenges in getting the cover they need at an acceptable price – 44% cited high deductibles, 36% historic loss experience, and 32% lack of risk or claims data as barriers. This may be leaving businesses dangerously exposed.
- Reasons for optimism: Despite challenging trading conditions, retailers expect for their strategies to reap rewards in the near term, with 58% responding that they expect to be a little or a lot more profitable within two years.
Garret Gaughan, Head of Direct and Facultative, at WTW, said: “It is reassuring to see that the Retail Industry is very upbeat about the future and embracing new technology such as AI whilst maintaining a healthy awareness of the risks that go with this.
“It will be crucial though that businesses navigate this new digital world safely. Public confidence and reputation are hard won and swiftly lost and by embracing tech and the digital landscape, businesses need to be aware they need to protect themselves in new ways.
“However, it is fascinating that despite so much commentary regarding the demise of physical retail, even purely on-line companies, see their future as including some element of physical retail space.”