A new reality bites as retail grapples with consumer recessionary mindset

CEOs globally have been forced to adapt to a new reality of constant disruption and uncertainty. Just as economies saw growth surges when emerging from the COVID-19 pandemic, many were plunged back into a state of slower growth, driven by geopolitical tensions, inflation and higher interest rates. In Asia-Pacific, there is consensus among CEOs that a downturn is near, if not already in effect. According to the EY CEO Outlook Pulse, 99% of CEOs are actively planning for a downturn scenario, with a majority (72%) preparing for a severe downturn in the region.  

Consumers are likewise reacting to the downturn by reining in their spending and making dramatic, short-term lifestyle changes to cope with ongoing disruption. So how can retailers balance the ever-changing consumer preferences and macro issues impacting their business to create long-term value for consumers and themselves?

Getting inside the evolving consumer mindset

Retail CEOs today must unravel the consumer mindset which has lurched from pre-, during and now the post-COVID-19 reality. This reality, according to the latest EY Future Consumer Index, is that more consumers in Asia-Pacific are now highly price-sensitive, prioritizing essential goods and services over luxury and non-essential items. But price alone will not determine purchase decisions as a vast majority of consumers (72%) will focus more on value for money as they are being charged more for goods across the board. On this point, retailers must also be mindful of passing on higher production costs and prices directly to consumers. Value-driven consumers will favour brands that make efforts to limit price rises where possible.

In the K-shaped post-COVID-19 recovery that we are witnessing across most countries, we also see the emergence of a distinct and niche premium consumer base that is highly motivated to spend on discretionary luxury purchases and experiences. This is reflected in the latest EY Future Consumer Index, where we see the ‘Experience First’ consumer segment being the fastest-growing one, as health and financial concerns diminish. These consumers are hungry for unique products and experiences, and value personalization and brand stories that echo their outlook on life.

For retailers and their CEOs, these mindset shifts are a key focal point for determining strategies and key decisions for the year ahead. The perception of value is now a key battleground as consumers reprioritize in line with broader macro trends. Value is not just what they buy, but also measured by their purchase experience, and how the goods or service supports the way they want to live. Sustainability, impact on health and wellbeing, plus ethics in the way goods and services are marketed and provided to the consumer, will all have a bearing today on brand perception and purchase decisions.

Hyper-personalisation driving data and technology needs

A more nuanced value perception means retailers need to understand the trends shaping consumer lifestyles today. Consumers today no longer view themselves as part of a demographic group but as individuals. Retailers must transition segmentation strategies to address the needs of every individual. This demands accurate and constant insight which has elevated the use of data and analytics to new heights.

The EY CEO Outlook Pulse survey highlights the intensified need for data as more than a third (38%) plan to increase their investment in digital transformation initiatives centred around data and technology.

Beyond the usual data-informed buyer insights, data insights are also critical to optimizing supply chains and adjusting pricing strategies. Timely data insight allows retailers and manufacturers to fine-tune supply chain decisions, increase operational efficiency and reduce inventory and overall costs. Data insights are also critical to the growing sustainability requirements that are being applied to supply chain management today.

Retailers to double-down on customer experience

This drive to optimize across the value chain extends to the way retailers engage consumers. Experiences are the focus with product just being one element of the overall customer offering. Not only do consumers want personalized and contextual offerings from the brands they buy from, but they also demand to be engaged in exactly the ways they prefer. The desire for custom experiences means the pursuit of dynamic omnichannel capabilities, along with digital ecosystems and emerging metaverse solutions, will gather pace as consumers merge new-found digital convenience with a continued need for human interaction.

Continued innovation will be central to transforming retail brand experiences for consumers. Brands must explore ways to engage consumers across the whole buyer journey and beyond and, identifying points to support consumers in how they live and work is also relevant today. In response, retailers will need to evolve the products and services they offer, their business operations, and how they engage the consumer beyond the product and service. Businesses also need to identify, implement and integrate technologies that are right for today and for the future. Strategies must simultaneously embrace the reality today and the possibilities tomorrow to ensure relevance, resilience and competitive edge in this current era of volatility and beyond.

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The views reflected in this article are the views of the author and do not necessarily reflect the views of the global EY organization or its member firms.