By Rieva Lesonski
Physical stores remain the most important point of purchase for consumers.
The National Retail Federation (NRF) has just revealed its forecast for 2023 and good things are in store for the country’s online and brick-and-mortar retailers. During its third annual State of Retail & the Consumer virtual conversation, the retail association expects retail sales to grow 4 to 6% this year, to between $5.13 trillion and $5.23 trillion. This positive sign for retailers follows annual growth of 7% in 2022 over 2021, with retail sales reaching $4.9 trillion. And while growth in 2023 will be lower than in 2022, the forecast is above the pre-pandemic average annual retail sales growth rate of 3.6%.
E-commerce will also have a peak year in 2023, with sales expected to increase 10 to 12% between $1.41 trillion and $1.43 trillion. (Online sales are included in the total growth mentioned above.)
But post-pandemic, e-commerce has moved from a standalone sales phenomenon to a part of consumers’ shopping experiences. According to the NRF, “While many consumers continue to take advantage of the conveniences of online shopping, much of that growth is being driven by multi-channel sales, with the brick-and-mortar store still playing an important part of the execution process. As the role of physical stores has evolved in recent years, they remain the primary point of purchase for consumers, accounting for approximately 70% of total retail sales.”
So for consumers, their ideal retailers offer in-store and online shopping and a seamless experience, meaning they can buy online and return in store and vice versa. This echoes the findings of a study by market research platform Momentive, which says the future of retail is ‘hybrid’. Key findings from a Momentive study show:
- 56% of adults prefer to shop both online and in-store
- 88% say it’s important for a business to be able to buy both in-store and online
- 24% are less likely to buy online from a company that does not also have a store
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Outlook for the overall economy
Less optimistic, NRF chief economist Jack Kleinhenz says the organization predicts the country’s full-year GDP will grow at about 1%, which is slower than the 2.2% increase in GDP in 2022. however, the NRF says that inflation will continue to fall, but is likely to remain between 3 and 3.5% this year for all goods and services.
Kleinhenz also reports that while the labor market has “remained resilient, the NRF expects job growth to slow in the coming months in conjunction with slower economic activity and the prospect of restrictive credit conditions. The unemployment rate is likely to exceed 4% before the start of 2024
But Kleinhenz warns that the economic outlook could become “complicated” due to recent developments in financial markets and the banking sector, as well as “some unresolved public policy issues”.
Kleinhenz adds that consumer spending looks “pretty good” so far this year, and the NRF expects consumers to continue to spend. That optimistic outlook is underlined by spending for Easter this year, which is expected to hit a record $24 billion, surpassing 2021’s $21.7 billion and 2022’s $20.8 billion. While that sounds like a lot of money for a one-day vacation, Americans are expected to spend more than $3 billion on Easter candy alone.
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Where consumers buy
February sales statistics, the latest available, show that consumers shop at different types of stores. Year-over-year sales from February 2022 to February 2023 show:
- Health and personal care stores: +8%
- Clothing and clothing accessories stores: +4.1%
- Sporting goods stores: +3.4%
- Building materials and garden supplies stores: +0.7%
- Furniture and home furnishing stores: +0.4%
- Electronics and appliance stores: -2.2%
NRF president and CEO Matthew Shay does not find the sales growth in February surprising. He says it “reflects consumers’ ability and willingness to spend thoughtfully on household priorities.” Despite the recent economic volatility, says Shay, “the underlying fundamentals in the consumer economy remain on solid footing as jobs and wages grow and inflation tends to fall.”
Technology and the store staff
There is a lot of buzz in various sectors of business about artificial intelligence (AI) replacing workers in the labor market. However, the NRF doesn’t think this is imminent, saying: “Despite the growth in automation over the past few decades, we haven’t seen much of an impact on the workforce. For example, self-checkout has not reduced the number [of employees] work in stores.
“What we do see is technology and AI replacing some of the more mundane, repetitive tasks, allowing human employees to focus on high-value, high-touch roles. This is a highly competitive industry in a very tight labor market, so we see no reason to believe there will be any displacement of workers.”
Retail resilience
NRF’s retail sales calculation focuses solely on core sales and outlets and excludes car dealerships, gas stations and restaurants. (But restaurants are also expected to have a boom year, with the National Restaurant Association projects a 6.4% revenue increase to $997 billion by 2023.)
When the pandemic first sent millions of Americans home and many stores temporarily closed, there were concerns it would be the death knell for the industry. But surprisingly, the opposite happened. Shay says, “Over the past three years, retail has experienced growth that would normally take nearly a decade by pre-pandemic standards.”
Indeed, between 2010 and 2019, the average annual growth rate of retail sales was 3.6%. But from 2019 to now, retail sales have experienced an astounding 30% growth.
And while Shay admits that this kind of growth is unsustainable, the more moderate growth forecast this year is still well ahead of that historical growth average of 3.6%. Shay attributes the positive trajectory to retailers “continuing to find innovative ways to meet consumers, offer the right products at the best prices and deliver great experiences.”
About the author
Rieva Lesonsky is CEO of GrowBiz Media and SmallBusinessCurrents.com and has been dealing with small businesses and entrepreneurship for over 30 years. Get a better understanding of business trends by signing up for her free currents newsletter.
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