4th Barometer on the challenges and opportunities of the retail sector

On November 15, 2023, 60% of Spanish retail companies struggle to understand their customers well due to the increasingly individualized, heterogeneous, and changing preferences and habits of the new consumer, according to the conclusions of the 4th edition of the study "Retail Barometer 2023 – 2024: Towards Intelligent Retail," conducted by Esade, with the support of the technology consulting firm SEIDOR and the collaboration of the communication consulting firm ATREVIA, through a survey of 250 manufacturers, distributors, and individuals working in wholesale and retail companies.

Moreover, in the face of these heterogeneous customer characteristics, influenced by multiple factors such as the variability of habits, values, behaviors, attitudes, or references, as well as a fragmentation of channels and points of contact, only 40% of retailers have defined the customer journey in their physical and digital sales channels.

Thus, despite retailers sharing the belief that understanding customer behavior in the store is necessary to design their customer experience strategy, the report suggests that a majority is unaware of this information, a figure that also worsens the results from the 2022 barometer.

This difficulty in identifying a typical buying path poses the need for retailers to have a better understanding of the individuality of each customer to, in turn, create personalized proposals. In this regard, the study also highlights the trend among retailers to pay special attention to key elements such as the use of automation tools to reduce customer journey frictions and the implementation of intelligent prediction and personalization models.

Overall, for the Spanish retailer, the main competitive utility of technology is its contribution to customer knowledge (32%), followed by process efficiency (29%), and productivity (26%).

Hyperpersonalization and AI

The growing availability and accessibility of Artificial Intelligence (AI), fueled by vast amounts of data from purchases, store journeys, online interactions, trials, returns, experience surveys, or synthetic data, among others, will facilitate progress in hyperpersonalization of retailer proposals tailored to the individual characteristics of each customer.

In this sense, hyperpersonalization, understood as the adaptation of products, messages, and offers to the explicit, implicit, and emotional needs of each customer, will remain at the forefront of strategies for retailers innovation in 2023.

In this regard, Javier Alonso, Marketing & Commerce Senior Advisor at SEIDOR, has indicated that "the use of these technologies to advance hyperpersonalization is increasingly within the reach of retailers, thanks to the growing availability and accessibility of tools based on predictive models of Artificial Intelligence".

Technological Challenges

Compared to the previous barometer, it is observed that challenges related to the implementation of technology in retail are the ones that have grown the most (in all cases, in double digits), with an average increase of 17%. Among them, the challenge that concerns the sector the most is the proliferation of selling products through digital platforms or third-party marketplaces (27%), followed by the digitization of physical stores to adapt them to buyers (13%), and finally, by the technological development of the supply chain (10%).

The rest of the challenges that the Spanish retail sector considers most relevant maintain some continuity with the conclusions of the 2022 barometer, with a majority of companies still pointing to the need to gain agility in their businesses, an aspect indicated by 72% of the companies; driving innovation, for 66%; and improving communication with customers, accumulating another 66% of responses.

In this competitive framework, retailers have intensified strategic lines focused on digitization, as already indicated in 2022, especially regarding omnichannel, automation, and hyperpersonalization.

Complementarity between Physical and Online Stores

Another key conclusion from the new barometer is that the concept of 'phygital' has evolved from being a complete integration of physical and digital sales channels to being conceived as complementarity between the physical store environment and the possibility of online shopping, where each retains its own distinctive characteristics.

In the words of Guillem Crosas, associate professor in the Department of Marketing at Esade, "within the concept of 'phygital,' complementary differences between the physical store and the ability of the online channel to extend the experience, personalization, and services that give meaning to both are beginning to be emphasized, thus shifting from the concept of pure omnichannel to that of a customer more in control of their customer journey."

Sustainability Gains Strategic Value

The retail sector is already beginning to consider sustainability, and everything related to it, as one of the main strategic vectors of its business. The push from new generations of customers towards responsible and sustainable consumption is evident, especially in recent months, sustainability has also permeated the retail sector.

Regarding this evolution, Mónica Colmenero, Consumer Director at ATREVIA, has stated that "the consumer of 2023 has directed their efforts towards economizing, in response to the increase in living costs, reducing energy consumption, transitioning from buying to renting, and sharing and reusing, among other actions. These actions have resulted in a decrease in the environmental impact of consumption and, ultimately, in the promotion of sustainability."

Likewise, practices such as the digitization of processes based on cloud technologies (and, recently, with the use of Artificial Intelligence), as well as continuous innovation in technologies for packaging materials or traceability of raw materials in the case of manufacturing firms, are contributing to retailers accelerating their sustainability practices.

A more selective, demanding, and polarized customer

Another insight from the study confirms that the retail customer is now a more selective and demanding consumer, seeking a more experiential purchase, with comfort as the top priority and relying on a growing critical sense, as well as greater awareness when deciding who, how, what, and why to buy.

Furthermore, due to the current geopolitical context, dominated by inflation, fear of recession, and political instability, a shift in purchasing behavior is taking place. The prioritization of services and benefits over material objects is evident, as well as a greater emphasis on personalization.