Retailers’ Secret Weapons to Survive a Potential 2023 Recession? Digital Tools and Data

In November 2022, Amazon CEO Andy Jassy announced layoffs in the company’s corporate offices by explaining that “the economy remains in a challenging spot.” The news reportedly impacted about 10,000 employees in Amazon’s devices, books and people, and experience and technology (PXT) departments—and Jassy added that cuts will continue in 2023.

Amazon is hardly alone. Retailers like Best Buy, Party City, Walmart and Wayfair also announced layoffs in 2022. And a recent survey from job site ResumeBuilder found 61% of companies expect more staff cuts in 2023.

But for anyone harking back to the last major recession in 2008, the stakes are far different this time around for consumers and retailers.

“Losing your home puts you in a different shopping point of view,” said Juliana Prather, CMO of retail analytics platform Edited. “Today you might see the impact is people are going to buy more accessories and less outfits for weddings because accessories help you use your existing wardrobe more. In 2008, you’re talking about foreclosures.”

There’s another key difference between now and 2008: digital technology. And retailers will have to make some adjustments as they contend with the biggest recession of the digital era. The good news, however, is they have plenty of options in their product assortments, store footprints, customer behavior and even virtual worlds as they face these economic headwinds, using tools including basket analysis, which shows what customers are buying, and assortment planning, which helps retailers decide what to sell.

‘Recession-resistant’ categories

One tactic is to focus on growing private-label brands, which cost less and are therefore attractive to price-conscious consumers.

“We continue to hear the brands that have private labels want to grow that business, and the retailers that don’t have it want to expand into it sooner rather than later,” said Brad Jashinsky, director analyst at research firm Gartner, pointing to Walmart and Kroger as examples of brands that have leaned into private labels. (Neither company responded to requests for comment.). “It is such a value-add and a great way for retailers in many categories to be able to have higher margins and then keep prices more competitive.”

We will also see multicategory retailers zero in on “recession-resistant” categories, which include products consumers need rather than want, such as grocery, health care and pet goods.

Meanwhile, the biggest challenge for retailers and retail marketers will be lower conversion rates and basket sizes, which impact return on ad spend (ROAS). And while steep discounts have helped retailers move excess inventory, they are not sustainable because they impact profit margins, Jashinsky said.

“In response to this shift, brands can adjust strategies to match the consumer mindset, including using downturn-friendly messaging to reinforce the value of their products and build loyalty,” said Jason Alan Snyder, global chief technology officer at digital agency Momentum.

This will not be welcome news for brands in other product categories like apparel and home goods—especially newer brands looking to make names for themselves—as retailers become less likely to take on risk with unproven products. Zach Weinberg, vp of ecommerce at performance marketing firm Reprise Digital, noted “that may mean a challenge when it comes to a brand gaining shelf space. And that also may mean brands will have some challenges when it comes to launching new items as well.”

Jashinsky agreed retailers will be “much, much, much less aggressive” in their expansion plans in 2023. This includes hiring freezes and layoffs, in addition to lowered investment in physical expansion, store refreshes, distribution centers and experiments that are not central to driving profits and revenue.

“The media talks a lot about a crypto winter,” he said. “I think this is the retail winter, where it’s time to hunker down and focus on what we know and not make any aggressive bets.”

Embracing the metaverse

While physical expansion is unlikely, we will see development elsewhere as more retailers set up shop in the metaverse in 2023. In fact, Gartner predicts 25% of consumers will spend at least an hour a day in the metaverse for work, shopping and entertainment by 2026.

We’ve already seen movement in this space from luxury fashion brands like Gucci, which has partnered with platforms like Roblox to release digital apparel. (Gucci did not respond to a request for comment.) Virtual world Decentraland also hosted its first Fashion Week in 2022, which Snyder said “[marks] an inflection point for fashion” and “harbinger for brands and retail.”

He expects to see more brands “step up their game” in 2023 as they treat the metaverse as a commercial platform and growth opportunity.

We’ll also continue to see secondhand marketplaces such as Depop, Poshmark, the RealReal and ThredUP grow as retailers embrace recommerce, or recycling old products at lower costs.

This is, of course, not a new concept, but will become a “safe bet” for brands in choppy economic waters. Per Snyder, there are multiple advantages for retailers, including less overhead; more competitive pricing—and faster movement—of underperforming products; and immediate value from products offering the best for less.

Leaning in to loyalty

At a time when price-based switching becomes more common, rewarding loyalty—and retaining shoppers—will become a powerful retail defense strategy.

Expect to see retailers emphasize their loyalty programs to keep the customers they have and grow basket sizes as a result. Elizabeth Marsten, senior director of strategic marketplace services at performance marketing firm Tinuiti, pointed to Kroger’s Fuel Points program, through which customers earn discounts on gas via their store purchases.

In addition, retailers like Instacart and Walmart offer advertisers targeting options for behaviors like past purchase, in category and never purchased, which brands can also use to grow baskets and could lead to promotions or discounts.

Loyalty programs also offer opportunities for greater personalization by analyzing data through retail media networks, creating targeted messaging for partner brands based on users’ past behaviors.

“On one specific retailer, 96% of all purchases happen with a loyalty card. That data can be leveraged to be more targeted and personal for consumers,” said Jeff Malmad, global head of commerce at media agency Mindshare.

Retailers can appeal to price-conscious consumers with more and better experiences, too, which has become increasingly valuable for both brands and consumers. “The result is a significant lift in positive sentiment, engagement, purchasing, trial and retention,” Snyder said.

Each Saturday, Lowe’s holds “Weekending at Lowe’s” activities for families at its stores, offering everything from tailgate parties to DIY workshops on tiling a bathroom floor. “And while they’re in our stores doing fun things as a family, odds are they’re going to pick up a few things they need around the home,” said Jen Wilson, svp of enterprise brand and marketing at Lowe’s. “Giving consumers new and interesting ways to interact with your brand doesn’t have to be expensive.”

This, too, will boost loyalty and engagement, as will providing innovative methods for consumers to virtually sample, visualize or explore products through channels like AR and wearables.

In the end, no matter what happens, it’s important to remember something is better than nothing.

“Brands that cease advertising during a recession can suffer long-term negative effects, and when they resume their efforts, it can take years to recover the equity losses they have incurred,” Snyder said. “Marketing accounts for a significant portion of a brand’s equity, so it is crucial to continue investing in advertising, even during difficult economic times.”