Consumer & Retail top risks forecast

Continued cost inflation across a number of input costs including commodities and energy prices is squeezing margins whilst continued high interest rates push up the cost of capital. The number of elections around the world is adding to the uncertainty over policy-making in a large number of countries where the lack of visibility is impacting consumer confidence.

The sector — and within the sector, specific industry segments — has largely remained resilient through the ups and downs of various economic cycles. However, there is a growing risk that economic instability globally may lead to political and social disruption in key markets and regions. This could accelerate increasingly nationalist agendas, supply chain disruptions and further trade barriers.

Many consumer and retail organizations are already taking measures to improve their resilience to fluctuating economic cycles. They are rebalancing their geographic portfolio, assessing their market risks and right-sizing their cost structures. At the same time, they are also considering how economic trends might impact their product and brand selection as consumers reconsider their household spend and their choices between value and premium products.

China is not just one of the world’s biggest consumer markets. It is also the biggest supplier of consumer goods and manufacturing inputs globally. Either directly or indirectly, what happens in China’s economy impacts consumer and retail companies around the world.

At the same time, evolving geopolitics are changing the way consumer and retail organizations approach China’s market. Those with supply chains originating in the market are looking to diversify their supply networks. Those with operations are reexamining their business structures and their technology architecture. Many observers are also closely monitoring the property market as further disruption could have far-reaching implications for consumer sentiment in the domestic market.

While analysts suggest that China’s economy may be slowing, the growth of their ecommerce platforms shows no signs of cooling. The leaders are expanding into the West at a rapid pace. Consumer and retail executives globally will need to carefully evaluate the broader environment in China if they hope to navigate the uncertain geopolitical landscape.

For many companies, what started as a supply chain challenge with Houthi rebels disrupting shipping in the Red Sea (through which around 15 percent of global maritime trade volume normally passes),1 has more recently escalated into a broader challenge.

The profile of the conflict beyond the region’s borders has challenged a number of flagship companies to take a stance on key issues, as a result of boycotts, social action and increasing activist pressure. It is also creating uncertainty in energy markets, leading to knock-on costs for consumer and retail companies. For those operating in the region, it is creating real security and workforce concerns.

What the Middle East crisis shows is how important it is for consumer and retail organizations to conduct scenario planning, prepare their positions on key issues and manage their supply chain risks continuously.

Whether it is through their corporate purpose, the distinctive story of their brands, or their ESG commitments, consumer and retail companies are being more and more transparent about what they stand for as they strive to attract and retain consumers and employees.

What used to be largely a transactional relationship on all sides is now positioned as a relationship based on shared values. It is no surprise therefore that in today’s polarized, political landscape consumer and retail companies are expected to take a stand on the key cultural and political issues that impact not only their customers, but also their employees and suppliers.

In a world of social media where information — not always reliable — can become viral instantly, consumer activism, boycotts and divestment pressures are getting much faster, deeper and broader traction than before. This can cause permanent damage to companies and brands when campaigns are ill-thought through or poorly executed.

The same applies to the broader ESG agenda which has also entered the world of politics as governments come under pressure on the funding of transition and adaptation measures. The reality is that the ESG bar is not set at the same height across the world. This makes it difficult for global businesses to operate consistently, both in terms of competitiveness but also in terms of balancing the consistency of corporate and global brand narratives with a wide range of local consumer attitudes and beliefs.

For most consumer and retail executives, the relentless exposure to social media and an element of peer pressure make this topic new (and uncomfortable) ground. As such, companies will want to implement clear and tested decision-making frameworks for communicating on issues of political sensitivity, aligned with stated corporate values. True, senior executives have always needed to manage a broad range of new risks, but with customers, employees, regulators and investors watching ’live’, there is nowhere to hide.

That being said, the rewards will likely be high for those companies able to remove any ambiguity for their stakeholders and consumers and stay true to their identity and values — whatever the circumstances.

Consumer and retail organizations have been keen adopters of AI and automation in order to bring costs down and/or to provide constantly evolving forms of consumer engagement and loyalty. AI-enabled bots are dealing with customer inquiries; self-scan checkouts are interacting with in-store customers; and automated processes hum away in the back office.

In a context of continued pressures on costs and fierce competition for consumer’s attention, the value of Generative AI could be immense and the number of use cases is exploding across the industry. As with any type of disruptive technology, the risks are significant. Consumers are worried about bias in the underlying models and the use of their data. Employees are concerned about their jobs being replaced by robots. Regulators are focused on privacy concerns and the use of personal data. Sales leaders are fretting about the impact on their personal relationships with customers.

AI is developing so quickly it is difficult for regulators to keep abreast of debelopments in a joine-up way. This means that consumer and retail organizations will — for the time being — need to govern their own use of AI and automation. And that will add to the (already long) list of topics senior leaders and Board members across the industry need to develop a deep understanding of, both from the technical and geopolitical perspectives.