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The year consumers changed for good

January 10, 2022, 11:15 AM UTC
Retailers are facing a perfect storm, with supply-chain and labor issues compounding the crisis caused by the pandemic.
Alex Wong—Getty Images

We started 2021 in the thick of a global pandemic, leading us into labor shortages, supply chain issues, and the highest inflation numbers in decades. The year ended with the perfect storm, where consumers fundamentally changed the way they think about shopping, forever.

More than half of Americans agree that behaviors adopted during the pandemic now feel normal and 49% believe their life will remain significantly changed in a post-pandemic world, according to data from EY’s recent Future Consumer Index.

There were rumblings of fragility in consumer products and retail well before the pandemic. COVID-19 and its variants only accelerated these issues and brought them to an unavoidable head. Rather than ask “when will this be over?”, we need to understand this perfect storm has no end in sight. Instead, consumers have reset expectations for retailers and brands.

The Great Resignation hit retail hard–and it’s far from over

In September 2021, a record 685,000 retailers called it quits. In the same month, 4.4 million Americans quit their jobs. In addition to facing the Great Resignation, the retail industry is having to contend with a shrinking pool of labor with shifting priorities.

Employees–particularly Gen Z–are no longer willing to work for companies that are not purpose-led and that are not able to meet their evolving demands for fair pay and flexibility. Perhaps even more indicative of the future, in the most recent EY Gen Z Segmentation Study, nearly two-thirds of Gen Z respondents feel it’s important to work for an employer that shares their values.

This is especially true, and perhaps more challenging, in an industry where the working conditions are not that of your typical nine-to-five office. In 2022, retailers will need to redefine the talent agenda and what it means for shareholder and employee value. For retailers, the workforce is the front line of the brand experience. When a labor force either doesn’t exist or is not engaged, quality of service and the consumer experience are called into question.

Consumers are willing to spend despite inflation–for now

We’re seeing the highest inflation numbers in 39 years. Yet, for the first time in history, consumers are still willing (and wanting) to spend money despite the increase in the cost of living. We can attribute this not to rising wages but to supply chain complications that are limiting consumers’ ability to purchase what they want. Consumers have money burning a hole in their pockets and are willing to take what’s available, even at a premium.

While consumers are willing to take on higher price points for now, how long will it last? What’s the tipping point? Changing interest rates and market conditions, as well as ongoing complications from new variants and continued geopolitical instability, will drive how long consumers are willing to put up with higher prices.

In the long run, consumers will continue to put a premium on the importance of price: 58% will be more focused on value for money in the future according to our U.S. Future Consumer Index. So, when the supply chain opens back up and pent-up demand has passed, expect a reset for brands and retailers on the new requirements for service and quality in relation to price.

From ‘last-mile’ to ‘first-mile’

For years, companies had been hyper-focused on last-mile delivery, with retailers and brands prioritizing the processes to support the shift to online or BOPIS (buy online, pick up in store) delivery. What they failed to realize was that the first mile is where value is established.

The fragility and scarcity that underpinned retail before the pandemic hit is now abundantly clear. Raw material shortages continue to threaten production. Ships are stuck in ports. Free truck capacity is hard to come by. At various points, this all spelled disaster for the supply chain.

In the year ahead, retailers and brands will have to shift priorities to secure both the data and processes around the procurement of raw materials and logistics. The first mile needs to be redefined with consumers at the center.

This will become increasingly important as the expectation of ethical sourcing and sustainability continues to gain momentum. Consumer sentiment around sustainability has changed, and expectations of retailers and consumer products companies will need to change with it. Our data reveals one in three U.S. consumers feel strongly that companies should be focused on responsible production and consumption of goods and services. This trend reinforces the importance of getting the first mile right.

A great reset

The pre-pandemic rumblings are now at a crescendo. Their unintended consequences have all but forced a great reset for retailers and brands–not a short-term adjustment to consumer sentiment but a long-term, fundamental change.

Critical decisions on reimagining the talent agenda, resetting the supply chain to include robotics and automation, and capturing the value of ESG lie ahead of industry leaders. It’s a defining moment for retailers and brands. If they don’t shift quickly, they risk being left in the wreckage of this perfect storm.

Kathy Gramling is EY Americas’ consumer industry markets leader. The views expressed by the author are not necessarily those of Ernst & Young LLP or other members of the global EY organization.

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