3 trends in the retail sector that your company can't afford to miss
Get ready for an exhilarating journey through the evolution of retail we’re living right now!
While the first half of 2022 was an intriguing period for the sector, with persistent challenges from the past years, it also marked a scene of experimentation and adaptation in search of the ultimate shopping experience. As for the 2023, we would like to share with you the forecast by the National Retail Federation (NRF), predicting a 4 to 6% growth in retail sales, reaching figures between $5.13 trillion and $5.23 trillion, while e-commerce takes center stage with a projected surge of 10 to 12%, surpassing the trillion-dollar mark.
Join us to explore how these trends converge, shaping a cutting-edge retail landscape you won't want to miss, especially if your company aims to lead the industry.
Keys to e-commerce
According to Statista data, e-commerce users in Latin America are expected to reach approximately 317 million this year, and by 2025, this figure is expected to grow by 13.6%, which would mean 361 million users across the region.
We know that taking advantage of a wave of growth such as the one experienced by retail and e-commerce can involve complexities that only those inside the sector know in detail.
Here are 5 key points you should take into account.
1. New consumer habits of Gen Z
The labor entry of Gen Z (1995 - 2010) positions them as target consumers in the sector. Knowing their needs and tastes will be essential for strengthening supply.
According to a study on consumer habits and behavior in Latin America prepared by the firm Llorente y Cuenca, although online shopping is predominant among this generation, confinement has caused them to increasingly seek outdoor shopping experiences.
It will be important for the supply side to find a way to balance both sales channels to avoid cannibalization.
2. Traditional retailers' incursion into the digital world
The lead taken by SMEs and startups in the adoption of digital retail is shortening with the entry of "giants" in e-commerce. Innovation and customer experience will be key differentiators.
According to Forbes, Millennials and Gen Z significantly value incentives such as no-cost shipping, free and/or frictionless returns, as well as rewards for choosing where they shop.
This indicates that loyalty programs are an important differentiator.
3. Ultra-fast, automated payments and shipping
Consumers demand a frictionless, contactless, one-click, ultra-fast experience, as no one wants to spend minutes checking out of an online store.
In addition to the logistical challenge of meeting the demand for fast shipping, agile and secure payment processors are also important in e-commerce.
4. Fair trade and ethical consumption (circularity)
Consumer attitudes are changing regarding the importance of sustainability and the environmental traceability of companies. According to a Wharton University study, 75% of Gen Z is more concerned about whether a product is sustainable than the brand itself.
Thanks to e-commerce, the retail sector has entered a stage of unprecedented growth. Companies will have to gradually join the trends that are shaping the sector’s path, and adequate financing will be essential to achieve this.
5. Financing product offerings
One of the most popular alternatives today is Buy Now Pay Later (BNPL), an installment payment method offered directly to the consumer at the point of sale, both online and offline.
As consumers are changing their shopping habits in the retail market -—where speed and financing are a priority— the adoption of this model is expected to grow to capture 20% of e-commerce in Latin America, according to Americas Market Intelligence (AMI).
Let's explore a little further what this consumer finance model is all about and why it is having a major impact on the retail sector.
How does BNPL work?
One of the great advantages of BNPL is that it works just as its name suggests: buy now, pay later.
Although its emergence under this new name is recent, paying for a good or service in multiple payments is almost as old as banks. In that sense, credit cards would be more novel.
However, the wisdom behind this resurgence in which many finance and technology companies have shown interest is that they have replaced the bureaucracy of traditional bank lending with a convenient and friendly digital onboarding process.
Now, on the other side of the equation, suppose a retail company is interested in offering its customers the ability to make purchases under this financing model.
What would it need to accomplish this? The process varies depending on the service provider, but the general scheme doesn't change much.
Whether online or in a brick-and-mortar store, the customer will be asked to open a user account, where they will enter some personal information (name, address, official ID), and financial information (income or if they have been subject to credit in the past). After processing the data, the supplier will issue a response within minutes.
Once the purchase is approved, the customer can decide whether to cover the first payment on the spot or wait for the payment deadline to arrive.
While it is not as fast as a traditional check-out, it is considerably quicker than applying for a credit card. In addition, as we have already mentioned, it offers an alternative for those who currently do not have access to any other form of financing.
Now that we know how it works, let's see what benefits this payment model can offer retail companies.
Why should we offer BNPL in retail?
We said that the target audience for the BNPL service is Millennials and Gen Z (aged between 18 and 34). However, when analyzing the data further, we find that the reasons that motivate them to make purchases with this form of payment are more varied than they appear:
As a result, retailers are showing greater interest in making this type of offer available to their customers, especially in the retail market, which has been migrating its offerings to e-commerce for at least five years.
The main value proposition of BNPL in this regard is that it increases the average spend per order (or AOV), as well as the purchase rate, both key metrics for revenue growth.
Furthermore, from an operational point of view, the technology that underpins the BNPL check-out process can be incorporated into most e-commerce hosts via APIs, so the development investment is not high.
So far we have discussed why BNPL makes sense as an online payment method, but there is a powerful reason to incentivize retailers to opt to include it in their branches as well, as well as B2B companies.
Enhances brand experience
Making an online payment with BNPL encourages consumers to shop more frequently and with larger carts. But when this offer is transferred to physical stores, consumers may perceive it as an addition to the value proposition provided by the brand.
This contributes to the new generations' interest in increasing their consumption in brick-and-mortar stores. According to a study by Llorente y Cuenca, the comeback to normality boosted store preferences, due in part to the added value of being able to touch and try products before purchasing them.
In that sense, developing a shopping experience around BNPL in a face-to-face format can strengthen consumer loyalty.
As well as points of sale and financing, the way in which shipping logistics are handled today has changed significantly, especially with the advent of dropshipping.
What is dropshipping and how does it work?
Dropshipping is a method of fulfillment, i.e. one of the many processes by which a product travels from the point of inquiry to its delivery to the consumer.
What makes dropshipping different is the path that the products follow, as shown in this diagram:
This is a journey in which the consumer chooses a product in a marketplace or electronic store managed by a vendor. Once the consumer chooses and pays for the product, the seller ships the purchase order to the supplier, who sends the product directly to the consumer's home.
In this process, the seller does not require inventory or a storage warehouse but acts as an intermediary between the consumer and the wholesale supplier.
Now that we have a little more clarity on how dropshipping works, we can start analyzing its pros and cons.
First, the good news: let's address its pros, since, in recent times, they were the most popular.
1. No need to buy inventory or store it: Beyond enabling the virtual space where the product is displayed and paid for, there is no need for the seller to store, pack or ship it.
2. It is easy to start: Many businesses start with a dropshipping model, since it is very well-defined and allows you to iterate your target without compromising your operation too much.
3. Recurring costs are low: Given that you are not buying inventory or operating a warehouse (with all that this implies: rent, wages, services, among others), your recurring costs are quite low. As your business grows, they will surely increase, but hardly as much as in a traditional business.
4. Flexibility and a wide variety of products: Since dropshipping is a remote business, it allows you to manage it from anywhere in the world, giving you flexibility regarding the location of your team, as well as offering a virtually unlimited variety of products.
5. If the business grows, everyone wins: The growth of a dropshipping business is profitable for everyone involved: the consumer gets a wide variety of products at a good price; the supplier sees an increase in its sales volume every time it processes a new order, and the seller increases its profit margin.
Like any business, dropshipping is not without its challenges and obstacles. Just because its strengths have been the subject of debate, here we summarize some of the arguments against this business model.
1. Low-profit margin: Although it is a proven model, and therefore safe (some would say that it is almost like following a recipe), the truth is that there are many things to manage that will demand a lot of time and all your ability to negotiate with your suppliers.
2. Competitive and unregulated market: Due to the fact that a large amount of capital is not required to get started, a large number of people have joined the trend. This basically translates into a saturated, highly competitive market, with players that have significant competitive advantages.
3. No control over the supply chain or quality: The advantage of being an intermediary between the supplier and the end consumer is also a disadvantage if you think about it from a customer service point of view since it will always be more complicated to resolve any type of dispute because neither the chain nor the quality depends directly on you.
4. Legal issues: some suppliers are not as legitimate as they claim, so there is a risk that the origin of the products is uncertain. Or they may use another company's intellectual property without your consent. You must be vigilant in this situation to avoid legal complications.
5. It is difficult to build a brand: It is hard for a dropshipping company to have the elements to build a brand or a portfolio of intangible assets like those of a traditional company.
Tribal has the right solution for your retail business.
Constant market fluctuations can make managing your company's finances a real headache. That's why you need to be prepared so that when you need to invest in improving your business operation, you have the right partner to keep you ahead of the competition.
At times when you least expect it and your company is forced to invest more and better manage financial resources to stay ahead of the competition.
We know that getting a financial solution that fits your business needs is not easy, especially because of the barriers to access that traditional financial institutions have.
That's why we designed a 360 solution to help you take your business to the next level.
Tell us how we can help you: do better business with Tribal.