In the age of accelerated technology adoption, innovation and infinite possibilities, it is crucial that retailers are aligning consumer priorities with new value-based systems.
To help retailers gauge consumer priorities, Mastercard developed The New Retail Relevancy report, looking at how businesses can navigate the exciting future of retail.
Balinder Ahluwalia, Senior Vice President, Market Development and Digital Partnerships at Mastercard in Canada, said the trend recently among consumers is ‘smart spending’.
“This is a clear thing we’ve identified. The COVID impacts are real. Folks didn’t shop, they saved a bunch, had an opportunity to shop, drove up inflation and a bunch of other things that they were shopping, prices went up. It was a tough thing,” he said.
“The other thing we saw during that time, let’s call it the great reset would be one component which is COVID then the great rewire which we’ve sort of called bringing in new technologies, using the chips on our phone, the tapping when you get to the store, the acceleration of one-touch checkout on Amazon. Those two things taken together are really impacting the way consumers are looking at their spending.
“We found that over the last four years, e-commerce growth, the idea of folks buying stuff online has gone from about 10 per cent to about 18 per cent. That’s a big shift. Folks are buying more stuff, getting more comfortable with the new technologies, more comfortable with what they have to do.”
As a result of all of this, Ahluwalia said 70 per cent of consumers surveyed said they’re changing their patterns of buying due to inflation.
“As prices are driving things up, they have an opportunity here to save a little bit of money. If I understand the algorithms right with Amazon or understand the algorithms with some of the other things, maybe if I buy it at a different time of the day, or if I buy off cycle, or if I start to pay attention to when the stuff goes on sale, I can save a few bucks, which has been a really interesting nuance I would then offset against what we’re calling consumers focusing most on what they want they want to spend money on, discretionary spend – the travel, the restaurants, the apparel.”
The key points from the Mastercard report include:
- Smart spending is consumers’ dominant mindset in the current climate. The turbulence of recent years, alongside rapid technological progress, have set the stage for major changes to the retail industry. Seven out of 10 consumers say that high inflation has changed the way they shop and they are most likely to categorize their current spending mindset as “smart.” Rather than cutting back across the board, consumers are dialing into what matters most to them, with many splurging on luxuries while cutting back on basics. This is reflected in retail sales, with growth in joy-driven categories like experiences and jewelry;
- Virtual retail levels up style and functionality. Today, “ambient” technologies — like voice commerce and augmented reality — focus on making the retail experience more seamless. Looking ahead, consumers are eager to explore more immersive virtual retail, which provides new opportunities for self-expression, sensory experiences and crossover with the physical world. The adoption of digital currencies will also gamify and accelerate spending in virtual environments;
- Retailers must deliver more joyful and convenient experiences. More joyful shopping means an experience that offers more than shopping alone. Immersive exposure to innovation is on consumers’ wish lists as 83 per cent would like to view and test the latest products when they shop. Another 57 per cent of consumers also express interest in accessing immersive virtual experiences while shopping in store that can augment the meaning of the shopping experience. Convenience in the retail experience is the other key lever to dialing up joy. That’s why 59 per cent of shoppers are interested in “on-demand” retail — whereby online orders are delivered at lightning speed;
- Regenerative retail is critical to shaping the future. As more consumers seek to leave their communities and the environment better off, support for “regenerative retail” is spreading fast. As part of this transition, consumers are seeking transparent reporting from retailers about their progress toward their social and green commitments. More than half (53 per cent) say they prioritize brands that reveal their carbon footprints. Consumers are also weighing the deeper purpose of their own shopping choices as 82 per cent prefer to support small or local businesses, whenever possible.
The Mastercard report identified five opportunities to drive innovation in retail:
- Encourage meta-commerce by creating retail experiences and rewards ecosystems that span virtual and physical worlds and embrace the crossover between them;
- Provide alternative-payment solutions that meet consumers in the way they want to pay, such as cryptocurrency, biometrics and buy now, pay later;
- Facilitate different shopping mindsets by designing retail environments that can meet multiple needs such as optimizing for joy and convenience with delightful experiences that provides seamless engagement;
- Leverage personalization to maximize convenience with technology that enables seamless, digital-first shopping;
- Empower consumers with data to support socially and environmentally-conscious shopping.
Other key highlights from the report include:
- Spending prevails as retail exceeds pre-pandemic levels: According to Mastercard’s SpendingPulse in Canada, spending on apparel is running at a +11.9 per cent year-over-year pace (Q1 2023 vs. Q1 2022) and spending on restaurants is running at a +24.3 per centYOY pace (Q1 2023 vs. Q1 2022);
- Consumers are focusing on intentional spend in the current climate: The current spending mentality amongst most Canadians is a ‘Smart Spender’ with seven in 10 Canadians saying inflation has changed they way they shop;
- Retail transitions from omni-channel to metaverse: With six in 10 Canadian consumers having already or are interested in shopping virtually for real-world items, retailers are continually looking for new ways to offer in-store services to their digital customers by expanding sales across a wider range of platforms, including the metaverse. Additionally, 62 per cent of Canadian Gen Z are looking forward to brands offering personalized experiences in the metaverse;
- Offloading convenience with on-demand: With the on-demand economy estimated to be worth $335 billion by 2025, a blend of retail elevation with rising innovation will be required to streamline the overall in-store experience;
- Carbon conscious shoppers: Regenerative retail is becoming non-negotiable as 54 per cent of Canadian consumers prioritize brands that inform their carbon footprint while making purchases.
Ahluwalia said the Mastercard Economics Institute pays close attention to some key economic factors that influence consumer behaviour. One is unemployment and the rate of unemployment. The other thing is the housing market.
