Retail Dive's outlook on 2023

With the threat of a recession looming, the new year brings about a slew of challenges for retailers recovering from a year of supply chain bottlenecks and inventory surplus.

But not all of 2023 is expected to be gloomy. 

The expansion of the metaverse is likely to continue its growth trend as more retailers find new opportunities to connect its virtual base with real-life experiences. 

Despite their struggles, the resilience of malls persists with foot traffic recovering post pandemic, along with an additional emphasis on shopper experience for brick and mortar in general. 

And circular fashion, which started as a shopper-conscious movement to help save the environment, is becoming big business.  

These trends and more are expected to impact retail moving into 2023.

1. Bankruptcies on the horizon

Bankruptcy filings increased in 2019 and then surged in 2020 as the pandemic hammered retailers.

But headed into 2023, the markets have shifted. Federal stimulus payments have ended. Inflation and economic uncertainty have affected consumer spending.

Taken together, these changes could translate into fewer deals or no deals at all next year. The result could be a resurgence of retail bankruptcies. Retail Dive reported 17 bankruptcy filings in 2019. That nearly doubled to 30 in 2020. The trend eased in 2021, with just eight major retailers filing for bankruptcy that year.

And the number of retail bankruptcies continued its slide in 2022. Notable among them are Sears Hometown, an offshoot of the former retail giant. Bed Bath & Beyond also ended 2022 on shaky ground and within days of the new year warned it could file for bankruptcy. 

But the decline in filings doesn’t mean all was well in 2022. Instead of bankruptcies, many companies and lenders turned to layoffs, mergers or other methods to ease debt loads and get access to cash. 

At the start of Q4, nearly 20 other retailers were also at risk of bankruptcy, according to analysts. They include companies with national footprints like Party City and online home goods retailer Wayfair.

2. The metaverse grows (and continues to confuse) 

The onslaught of metaverse activations in retail is unlikely to subside in 2023. Last year, the industry saw a variety of brands enter virtual spaces to promote their brand and connect with younger audiences. Gucci, H&M, Puma and Gap are just a few companies that dipped their feet into the increasingly hard-to-define metaverse. 

With real-world revenue becoming a possibility in spaces like Roblox, the trend is likely to only grow. Despite 48% of teenagers in a Piper Sandler survey from April saying they aren’t sure of or aren’t interested in the metaverse, some analysts have a positive outlook on the concept. McKinsey & Company estimated that the metaverse could make $5 trillion in value by 2030, with an estimated $2 trillion to $2.6 trillion impact specifically on e-commerce. 

Whether that estimate will become reality is yet to be determined, but retailers are investing in the space nonetheless. With around 58.8 million daily active users on the virtual world Roblox, the risk might be worth it to some.

3. A recession? Maybe. Uncertainty? Definitely. 

Inflation appears to be settling down, but macroeconomic forces remain a threat to discretionary spending. Some economists argue a recession is inevitable, a consequence of efforts to slow demand and cool down prices. National Retail Federation Chief Economist Jack Kleinhenz isn’t one of them, saying early in the new year that “it’s too soon to say whether the Federal Reserve’s efforts to reduce inflation will lead to a recession.”

As retailers know all too well, however, it doesn’t take a full-blown recession to spook consumers whose household budgets have been squeezed for over a year. Still, in December, consumer sentiment bounced back “sharply” month over month, according to analysis from The Conference Board. People’s feelings about the present and the near future improved, though expectations “are still lingering around 80 — a level associated with recession,” according to that report.

Rising confidence is generally good news for retailers, although consumers in 2023 are likely to remain careful and choosy about what they spend their money on. And experiences will continue to compete, and often win, their discretionary dollars. Consumers are likely to elevate their spending on services at the expense of big-ticket purchases, for example, according to Lynn Franco, senior director of economic indicators at The Conference Board.

“This year starts with the possibility of easing inflation but also uncertainty,” the NRF’s Kleinhenz said in a statement. 

4. DTCs continue to struggle with profitability 

The wave of IPOs from direct-to-consumer companies in 2021 offered the public greater visibility into how they were performing financially.

Several DTC darlings, which launched with the intention of disrupting their respective categories, had one thing in common upon entering the public markets: their struggle with reaching profitability.

Warby Parker, Allbirds and Bark, which all went public in recent years, have reported mounting losses even as sales have grown. Even DTC brands that have been trading publicly longer continue to struggle with reaching, and maintaining, profitability.

DTC brands are often forced to grapple with high marketing costs associated with acquiring — and retaining — customers. With investors becoming more critical of the financial performance of DTC brands, companies will need to find ways to mitigate these costs, which often come at the expense of making money.

And while investors increasingly are no longer condoning the “grow-at-all-costs” mentality that was once accepted, e-commerce startups continue to attract VC funds. According to a December report from PitchBook, e-commerce startups raised $20 billion across 450 deals, as of Sept. 30, 2022. While that represented a 42% decrease from 2021, when deal activity was historically high, it marked a 44.5% increase over 2020.

5. Environmentally conscious retail gears up

In 2022, plenty of brands launched more recycled-material initiatives. That included programs to recycle used merchandise and the release of capsule collections made of existing recycled materials. Several big names invested in recycled materials startups, including Zara parent Inditex and Goldman Sachs Asset Management.

With consumer interest growing, 2023 could bring more sustainability initiatives from those startups and brands. Although the higher price tag for more environmentally-friendly retail products can dissuade some consumers from purchases, 60% of them said it was an important buying factor in a study by Simon-Kucher & Partners in 2021. 

Retailers such as The Real Real and Rent the Runway are even joining organizations dedicated to minimizing the industry’s impact, such as the American Circular Textiles policy group. 

6. Another tricky year for malls

In the 20th century traditional indoor malls enjoyed a few heydays. But those days are gone, as smaller, more convenient strip-style centers attract not just discount stores but even the longtime anchors of malls themselves. Department store giant Macy’s, for example, enters 2023 having sped up its development of its nascent off-mall fleet.

Last year seemed to be something of a reprieve for malls (and physical retail in general), as traffic bounced back, in large part thanks to COVID-19 vaccines. Indeed, malls have been surprisingly resilient, despite the rise of e-commerce, and high numbers of retailer and mall REIT bankruptcies and store closures, according to experts at Trepp, which provides research and technology to the structured finance, commercial real estate and banking markets.

“Mall loans continue to defy logic,” Trepp Senior Managing Director Manus Clancy said. “Some things – like Twinkies and Paul Rudd – never fade away. It is the same with mall loans. Investors have been predicting copious mall defaults and losses since 2017. There have been some, but nothing like the number most expected (including us).”

How malls fare in 2023 depends on a number of factors, including whether there is a recession and how severe it will be, according to Trepp. Nick Egelanian, president of retail development firm SiteWorks, expects more mortgage defaults, special loan servicing, sales and liquidations, and a “steady reduction in operating performance and malls in operation.” Some malls will be redeveloped, not necessarily successfully, he said by email.

“All in a continuance of the final phase of a 40-year decline that will leave only 150 to 200 top performing fortress Specialty Retail malls in operation in 10 to 15 years,” Egelanian said.

7. Marketing gets more complicated

Marketing has never been simple, but a confluence of factors will make the task even more challenging in 2023. The threat of a recession means marketing budgets are also at risk as some organizations may be on the lookout for costs to cut. Marketing is traditionally one of the first departments to get the ax, and retailers are already coming off of a string of corporate layoffs in the back half of the year, which have followed them into 2023. 

Even without slashed budgets, a series of obstacles face retail marketers in the year ahead. The deprecation of third-party cookies and anti-tracking updates from Apple and others are making data collection more difficult just as more shoppers have turned to the internet for purchases. In fact, Gartner in December predicted that a majority of consumers would withhold critical data from marketers going forward. At the same time, Twitter’s takeover by Elon Musk has turned a major ad platform for many retailers and brands into an uncertain investment, causing companies to reevaluate the website and scramble to redistribute ad spend. 

And the collapse of major brand ambassador partnerships — like Nike and Kyrie Irving, and Adidas and Kanye West (also known as Ye) — highlights the need for increased scrutiny of influencers. The situation also leaves brands with tough choices to make on what to do with the designs and remaining product from failed relationships.

8. Is Amazon in crisis mode?

As we turn the page to 2023, time will tell. But 2022 delivered some challenges already. The company responded, in many cases, by pulling back in several areas.

One area was physical stores. America’s leading e-commerce company backed away from brick-and-mortar retail in 2022, closing all of its 4-star, Books and Pop Up stores. Amazon instead shifted its focus to grocery, apparel and technology through its Just Walk Out concept.

Amazon in November acknowledged that some people in its retail operations and device division were being laid off ahead of the holiday season. Reports at the time indicated that as many as 10,000 people could be let go.

Earlier that month, the company paused hiring in its corporate workforce. Amazon cited the economy as the main factor for its decision. Reports also emerged that the company planned to scale back unprofitable enterprises. Most of those units fell within Amazon’s retail operations business.

Amazon CEO Andy Jassy said in a statement in November that “more role reductions” are possible as the annual planning process continues into the new year. That started immediately in January, with Amazon increasing its layoff count to impact more than 18,000 roles, primarily in its Amazon Stores, and People, Experience and Technology divisions. The company also started the new year with an $8 billion term loan, as an “uncertain macroeconomic environment” pushed it to use a variety of financing options over the past few months. 

9. Resale brings in revenue — and risks overexposure

Over the past few years, resale went from a venture that was supported by people who were shopping sustainably, to a full-fledged strategy by retailers to bring in an additional revenue stream. 

A recent report by WD Partners found that 92% of respondents said they shop, buy, sell or trade secondhand items at least once a year. Additionally, nearly half said they’d be “more likely” to go to a big-box store and 40% to a department store if they sold used items. 

Walmart, Ikea, REI, Amazon and Home Depot all have a secondhand presence. The RealReal, ThredUp and Nuuly Thrift are also players. But this past year saw some surprising entries into the market on different ends of the spectrum: fast-fashion retailer Shein launched Shein Exchange in October while Rolex debuted a pre-owned program in December. 

And there is a good reason for retailers of all types to consider resale as an option: money. The secondhand apparel market is expected to reach $82 billion by 2026. But, what happens to this corner of the market when there are an abundance of platforms? Will consumers continue to buy? Will retailers have a continual stream of products that are in a good enough condition to make it work? 

For now, the audience is there. “The last 10 years of resale were dominated by marketplaces, but brands and retailers are driving the next wave of secondhand,” James Reinhart, ThredUp CEO and co-founder, said in a statement earlier this year. “We’re still in the very beginning of this trend, but the acceleration of resale adoption is a positive signal with enormous benefits for the planet.” 

2022 was a big year for CEO departures in retail. Bed Bath & Beyond, Gap, Glossier, Bonobos and more saw their top executives leave as the businesses changed or struggled to compete. That means there are also a lot of open positions in the industry. 

E-commerce company Wish announced CEO Vijay Talwar was leaving in September and still has not named a permanent replacement. In early December, VF Corp. CEO Steve Rendle retired from his post, leaving that retailer on the hunt for a permanent replacement. The new year has not been any slower: Already, Stitch Fix’s CEO has stepped down amid job cuts and Rite Aid’s CEO has exited. 

According to executive search company Heidrick & Struggles, there were 11 CEO departures at retail companies in the Fortune 1000 in 2022, the majority (eight) of which were in the Fortune 500. That was consistent with the past two years, where 10 and nine executives, respectively, left their companies and is lower than 2019’s total (14). 2023 could be an even bigger year, according to Catherine Lepard, a partner at Heidrick & Struggles and a managing partner of the company’s retail and direct-to-consumer practice.

“Looking ahead to 2023, we can expect to see continued and potentially accelerated executive turnover within the retail space. In particular, we’re anticipating that Q1 and Q2 will be the choppiest due to inflation and the slowing economy,” Lepard said in emailed comments. “Consumers are shifting their spending behaviors and trading down to private or value brands, focusing on essentials and veering away from big ticket items. It will continue to be challenging for retailers to beat the prior year’s sales performance.”

Top executives taking the reins in 2023 are entering a tough environment still defined by inflation and consumer behavior changes, with the threat of a recession looming over the industry. Fitch analysts earlier this year said 2023 could be yet another year where the strong get stronger and the weak get weaker. And while default rates might stay relatively low in retail, the bankruptcy of Party City has already set a dark tone for retailers on the brink.

Bed Bath & Beyond CEO Sue Gove, who became a permanent member of the team in October, and whoever replaces Heyward Donigan at Rite Aid, have their work cut out for them. Both retailers have been cited as a bankruptcy risk as they struggle to hang on financially. But retailers across the board are facing challenges.

A recent Challenger, Gray & Christmas report found that 100 CEOs across industries left their jobs in December, an increase from 95 in November. The yearly total for 2022 is lower than last year, but in retail, the number has stayed relatively steady. Where in 2021, 23 CEOs left their posts, that number was 21 last year.

Layoffs in retail have been rampant, both last year and into the new year, and new CEOs will have to navigate through existing company challenges and whatever macroeconomic conditions the industry could face in 2023.

Here are some of the retailers that have new leadership going into the new year, and what to watch for.

Adidas

Puma’s former CEO Bjørn Gulden just took the reins at competitor Adidas on Jan. 1. Adidas said over the summer that Kasper Rørsted would exit the top post at the company sometime in 2023, but the executive actually left Nov. 11, with the retailer’s chief financial officer leading in the short interim period.

Gulden’s first month at the company has already been somewhat eventful, with a fake press release circulating that said Adidas had named a co-CEO to ensure ethical manufacturing. That is far from the only challenge Gulden will face at the athletics retailer. The company is coming off of a recent break up with Kanye West, also known as Ye, and has said it will continue to sell Yeezy products without the brand name attached, which could be received poorly by customers.

Adidas also spent the end of 2022 slashing its guidance and has failed to keep up with the robust growth at Nike. The executive already has some experience at Adidas, having worked at the company in the ’90s, and analysts praised him for his success reinvigorating the (much smaller) Puma brand.

Just before the appointment was officially announced, Wedbush analysts said Gulden was “one of the best hires they could make” and praised his deep athletic experience. The analysts also noted Gulden could potentially return the retailer to a more exciting product lineup, having executed on a host of high-profile collaborations at Puma.

“While [Rørsted] has had some notable wins during his tenure (strong digital growth, the well-executed sale of Reebok), there’s also been a notable lack of product-related ‘wins’, particularly in light of the situation he inherited (when the business was driven by a well-rounded combination of classic styles like the Superstar/Stan Smith, innovative new models like Ultra Boost/NMD, and the emergence of the Yeezy collaborative sub-brand),” the analysts wrote.

Of course, Gulden’s takeover at Adidas means that there is also a new CEO to watch at Puma. Chief Commercial Officer Arne Freundt, a 10-year veteran at Puma, moved into the post in November as Gulden announced his exit.

Dollar General

Over the summer, Dollar General announced that longtime CEO Todd Vasos planned to retire. He did so in November, and the retailer’s next CEO, former Chief Operating Officer Jeff Owen, took over.

The transition should be relatively seamless at the retailer, given that Owen got his start at the discounter in 1992 and has been the company’s chief of operations since 2019. Vasos is also sticking around through April 1 to serve as an adviser, and will continue to be a member of the discounter’s board.

Still, Dollar General lost a CEO that had been at the helm since 2015 and oversaw massive expansion. Under Vasos, Dollar General’s sales increased by more than 80%, and its store count expanded by roughly 7,000. The retailer also began rolling out a higher-priced store format dubbed Popshelf under Vasos, which accelerated quickly after launch.

While dampened consumer spending is bad news for retail, the fact that consumers are looking for cheaper alternatives for their go-to products is good news for Dollar General and its discount competitors. Owen is taking on the top job at a time when the retailer is mostly thriving; his main challenge is to maintain the retailer’s success. 

And keep an eye on rival Dollar Tree, which just named one of Dollar General’s former leaders as its new CEO.

Sephora

Beauty retailer Sephora’s new CEO, Guillaume Motte, took on the leadership position in January. The company announced his appointment in November, several months after Martin Brok reportedly exited the role due to “a divergence of views.”

Motte takes on the role with several years of experience at parent company LVMH. At the time of the announcement, he was deputy CEO of the LVMH Fashion Group, but Motte also has experience at Sephora as the former CEO and president of Sephora’s Europe and Middle East division. Motte’s predecessor Brok, by contrast, had a food and beverage background, as well as experience at Nike.

It’s an interesting time for Sephora as a company. The retailer is pursuing a new store strategy built around opening shop-in-shops in Kohl’s locations (this comes after a break from its more than a decade-long partnership with J.C. Penney). The two retailers began the strategy in 2021 and last year expanded the deal to include shop-in-shops in every Kohl’s store, which will eventually give Sephora around 1,100 shop-in-shops in the U.S.

For Sephora, it not only means reaching a new audience but it also means moving outside of the mall and into more direct competition with Ulta. Many Kohl’s stores are located in strip-style centers, which is where Ulta opens many of its own stores and also where Target locations can be found (many of which now have Ulta shop-in-shops in them). The two retailers are also increasingly competing for exclusive access to up-and-coming brands.

Under Armour

Under Armour is the only retailer on this list that looked outside of the core retail environment for its new leader. The athletics brand tapped 25-year Marriott veteran Stephanie Linnartz as its new CEO in December; she is set to start in February. The announcement means that interim CEO Colin Browne will return to his role as chief operating officer.

It also means a leader with a completely fresh perspective to bring to Under Armour’s business, which has lagged behind its rivals and was overtaken by Lululemon in annual revenue in 2021. While Linnartz doesn’t have core retail experience, working at the hotel giant means she has experience in strategy, finance, sales, marketing and technology. She has also served on The Home Depot’s board and secured partnerships with major sports organizations, including the NFL and the NCAA.

Under Armour has maintained a dedicated emphasis on performance wear over the years, even as the rest of the industry has shifted to cater to athleisure. However, in November — when Under Armour recorded 1.8% revenue growth — Browne highlighted a set of “refinements” to the retailer’s strategy, which included narrowing its target audience to 16- to 20-year-old team sports players and expanding its apparel offering to better match the lifestyle positioning of some of its competitors. With the changes, Under Armour is hoping to “outfit occasions beyond the fields, courts and gyms,” Browne said at the time.

This strategy shift will now be under Linnartz’s direction, as will lingering inventory and inflation challenges plaguing the industry.

Foot Locker

Former Ulta Beauty chief Mary Dillon started at Foot Locker in September, a move that was hailed by industry observers thanks to her successful tenure at the beauty retailer. The CEO change comes at a pivotal time for Foot Locker, which is focusing on diversifying its product mix due in part to Nike’s pivot away from wholesale.

In the short time she’s been at the company, Dillon has already made significant changes to the company’s executive team, including hiring a former Ulta exec as Foot Locker’s new chief operating officer, creating a chief commercial officer position and beginning the search for a new chief financial officer. In November, Dillon also announced that Foot Locker would no longer expand into Japan and was shutting down two of its European joint ventures.

She is aiming to “simplify” Foot Locker’s business and has already identified key priorities, which include building out Foot Locker’s omnichannel capabilities, improving the FLX loyalty program, upgrading its technology and optimizing costs. Also left to Dillon will be the continuation of Foot Locker’s diversification efforts, and its relationship with Nike, which many analysts have expressed deep interest in since Foot Locker said it expected to receive less Nike product going forward.

Dillon has already met with Nike’s team and stressed in her first earnings call that the relationship remains “very important” but that “choice is something that consumers want.”

NEW YORK — The pandemic may be mitigated thanks to public health measures like vaccines, inflation may be on the wane and supply chain woes may be easing somewhat. But 2023 is nevertheless set to be defined by uncertainty, according to Michelle Evans, Euromonitor International global lead of retail and digital consumer insights.

The firm released a report on the top 10 global consumer trends, a few of which will especially impact retail, Evans said, speaking at the National Retail Federation’s major industry conference last week.

“The number one was the evolving economic landscape,” she said. “A close second was the ever-evolving, shifting consumer priorities. I do think those two as well as technological advances are probably the most dynamic drivers in place today when we think about consumer trends.”

Artificial intelligence has already emerged as a major theme of the year, but retailers should be wary of downplaying the importance of humans, according to Evans.

“This is all about finding that balance between human versus bot,” she said. “Machines obviously offer more convenience and speed. But really we shouldn't underestimate the power of that emotional connection with a brand. So certainly it comes down to authenticity. I think this is a key word that we see across a lot of these trends.”

Furthermore, while younger consumers may seem wedded to their devices, they are increasingly more selective about when, how often and how they use them, Evans said.

“Where could you automate and where should you automate? Those are two different questions you have to answer,” she said. 

In fact, after years of getting disrupted by technology, retailers face disruption from morphing generational attitudes, according to Evans. Environmental and social issues are important motivators for an increasing number of consumers, especially younger cohorts, which retailers and brands can’t ignore, according to Evans.

“You have to take a stand, but also believe in it,” she said. “Because if you don't come across as authentic, it doesn't matter if you took that stand or not.”

There are also several forces that are leading consumers to hit the brakes on acquiring discretionary goods. While Euromonitor analysts don’t expect a global recession this year, the cost of living continues to sap purchasing power. Last year, three quarters said they won’t increase their overall expenditures, per Euromonitor’s report.

But many consumers are also simply in a different mindset around consumption, after seeing that lower energy use and other cutbacks during the height of the pandemic had a sustainability upside, Evans said. 

“We are moving towards a more cautious and conscious consumer,” she said. “Clearly the economic reality is making consumers more cautious. And as a byproduct of that they're also becoming more conscious.”

Still, the year will also be defined by consumers’ interest in joyful pursuits after dealing with restrictions imposed on them by the pandemic and macroeconomic forces, she also said. The fashion and beauty industries are poised to be direct beneficiaries, as are food and beverage, hospitality and travel, and other service players, she said.

“There's ... basically the ‘Yolo’ trend —‘You only live once,’” she said. “We've been cooped up for so long, one crisis after another, and now you're telling me the economy's in the tank? You know what, I'm gonna still take that trip. So certainly consumers are maybe throwing some caution to the wind and getting out there. And that's where experiential retail and food service stand to benefit.”

NEW YORK — Coming off a holiday undermined by inflation, with uncertainty around the economy ongoing and consumer behavior still shifting, there were few signs of strength from the retail industry evident during the National Retail Federation’s annual conference this week. December retail sales, at the peak of the holiday season, were reported by the government the day after the Big Show ended, and missed the industry group’s expectations. But one bright spot emerged: resale is presenting an opportunity that is increasingly hard to ignore.

Buying used goods has long been favored by consumers looking for value, and that has become especially important with household budgets squeezed by inflation, several conference speakers said. And many, particularly younger consumers, appreciate what is widely seen as a more sustainable form of consumption, others noted.

“Obviously it's a hot topic. You don't need to look any further than that NRF agenda that you're all holding ... to see there's a number of sessions on this throughout the week,” said Brian Ehrig, a partner at consultancy Kearney who moderated a Tuesday panel on executing resale. “I think it's for two reasons. One, resale is good for the planet. And also hopefully, it's going to be good for business as well.”

There isn’t a consensus around how good, according to Ehrig. “But everybody agrees that it's going to be large,” he said, noting that Morningstar estimates that the market could hit $300 billion by 2031. “And it's growing at three times the rate of the primary market. And if you're in retail today, probably everybody would be very happy to get something that's growing very fast, growing double digits.”

Globally, the secondhand market is expected to have grown by 24% in 2022, according to a ThredUp survey of 3,500 U.S. adult consumers and 50 fashion retailers conducted by GlobalData last year. That report estimates that the U.S. secondhand market will more than double by 2026, reaching $82 billion. The luxury secondhand market is growing 11 times faster than traditional retail, according to Emily Erkel, who led a Monday panel on higher-end resale. Erkel is co-founder of luxury resale platform LePrix, which works with retailers to source and sell high-end pre-owned goods. 

“We're going to talk about the opportunity here,” said Lee Peterson, executive vice president of thought leadership and marketing at WD Partners, during a Tuesday presentation on resale in brick and mortar. “So right now — and I've heard this a few times this week, there's been other resale presentations — that we’re at around $30-some billion [dollars] a year now in used merchandise across the United States.”

J. Crew on Tuesday announced a two-pronged approach to selling pre-owned apparel. The preppy brand, like its sibling Madewell and a host of others, is working with ThredUp to sell used items online. Liz Hershfield, who leads sustainability at J. Crew Group as well as sourcing at Madewell, said during Ehrig’s panel that J. Crew has also curated an assortment of vintage items to sell in select stores.

Adding secondhand items to a retailer’s offer doesn’t just open a new revenue opportunity, according to speakers at NRF. Several said it also helps drive traffic to stores and e-commerce sites, as well as sales of new items, and that’s true across categories and price points. Molly Taylor, chief merchant for luxury off-price retailer Saks Off 5th, said that is one reason that brands have increasingly embraced such sales.

“Customers are really looking for that access to luxury brands,” she said during the panel led by Erkel. “I think resale is kind of a gateway to luxury.”

Ikea has also found that people coming in to buy or sell used items purchase new ones, according to Seana Strawn, who leads retail design and home furnishing identity at Ikea U.S., speaking alongside Peterson on Tuesday.

“We actually have seen people lined up outside our resale area to be able to be that first person to be able to shop the product,” she said. “And also the fact is, is that they don't just buy resale, they stay in the store and they buy our non-resale product as well. So it's absolutely a traffic driver, and it's absolutely an increase to basket.”

That doesn’t mean that adding resale is simple. Sourcing is more complicated than in traditional retail, Peterson noted. And there are different selling approaches, including buying inventory, peer-to-peer sales and consignment. M.M.LaFleur chose to work with a third party to facilitate its pre-owned sales, using a peer-to-peer model where customers buy and sell to each other, founder and CEO Sarah LaFleur told an NRF audience on Tuesday. 

With no MSRP rules for guidance and demand fluctuations that sometimes mean items could fetch prices higher than their original tags, pricing is also tricky. Authenticity and transparency around condition, especially in luxury, are key. Still, any retailer that fails to contemplate resale is leaving money on the table, given the enthusiasm for secondhand goods, according to those speaking at NRF.

Some 80% of Saks Off 5th customers want the retailer to offer used items, Taylor said. Just over 71% of consumers already buy, sell or trade items at least monthly, with 38% doing so at least weekly, according to Peterson. 

“Price is a factor, yeah,” he said. “But the treasure hunt is also a factor.”

Despite the complexities, many retailers have a decided advantage over dominant players like Goodwill and Salvation Army, whose stores tend to be poorly merchandised, with crowded, messy racks of goods and inadequate signage, according to Peterson. And at least for now, logistics mean that brick-and-mortar locations are the only profitable way to sell used goods.

“[If you’re not doing resale], you’re definitely behind the customer from what we can tell. We just did this research a few months ago,” Peterson said. “We all really need to start to think about how we're going to get this done. Fail fast, and get it going.”

As vaccines tempered the worst crisis of the pandemic, people got out of the house, refreshed their closets and enthusiastically shopped in brick-and-mortar stores. Retailers had a rough 2022 nevertheless, as household budgets were squeezed by rising prices on essentials, and as the pandemic continued to cause trouble throughout the supply chain.

But the industry’s predicament is not just about inflation. Through their spending behavior this year — and they did continue to spend — consumers made clear that, when prioritizing their discretionary funds, they often value experiences over goods. In this episode, Daphne Howland sits down with industry expert Doug Stephens, as the two have done at year’s end for a while now, to uncover how this matters to retailers, why experiential retail is definitely not about the metaverse, the new era at Amazon and more. Thanks for listening and happy new year.

Resource links:

How retailers are connecting the metaverse to the real world and revenue

Is Amazon done disrupting retail?

‘There’s the right home for any brand’: Why retail keeps turning to Los Angeles

2022 was a wild year for retail, with the impact of pressures like inflation largely halting the growth some direct-to-consumer and digitally native brands saw throughout the COVID-19 pandemic.

2023 is starting off to be an equally intense year for the industry, with a potential recession looming in the background while retailers dig themselves out of deep pits of inventory and grapple with increased expenses.

While macroeconomic challenges seem to be nonstop right now, DTC brands have faced a number of headwinds over the past few years, pushing them to find ways to get ahead strategically.

Toward the end of last year, brands were calculating the correct balance of stores by closing locations or announcing expansion plans, proving that a brick-and-mortar strategy of some kind is still important.

And while global venture capital funding was down in 2022, that doesn’t mean it's nonexistent. With some brands still announcing funding rounds over the last few months, there’s some hope that capital is still available for others — brands might just need to position themselves better to snag it.

What else does 2023 have in store for DTC? Here’s a look at trends that are likely to impact the sector going forward.

1. The balancing act of brick and mortar

While expanding into physical retail has become necessary for many digitally native brands, it has presented DTCs with new challenges, especially those that have been more focused on e-commerce. The COVID-19 pandemic first created a boom for online retail, with many DTCs remaining focused on that channel. But rapid growth also pushed some companies to expand their store presence, especially as health-related restrictions wore off.

In 2023, retailers have started to revisit how many stores are necessary due to macroeconomic pressures. 

Several DTCs have closed stores they opened over the past few years, while others have cut staff at such locations. Forma Brands, beauty accelerator and owner of the makeup brand Morphe, closed all its U.S. stores in early January just before filing for bankruptcy the following week. Around the same time, clothing brand Everlane announced it was laying off about 9% of employees, including a little less than 3% of store roles.

For those opening locations or testing the waters with pop-ups, understanding the customer experience will be key.

Athletics brand Wilson Sporting Goods, which has made DTC a priority, has been steadily expanding its physical presence in key markets, most recently opening two new Chicago locations that offer a variety of experiences such as a full pickleball court, laser personalization services and a putting green.

Additionally, beauty brand Glossier opened a new location in Washington, D.C.’s Georgetown neighborhood last July, which features an airplane theme that celebrates the city’s international relevance, showcasing arrival and exit signs, as well as custom luggage tags available for purchase.

And store expansion could potentially help mall traffic this year if fresh brands can attract new shoppers to those shopping hubs. Mall owner Simon Property Group even announced a partnership with DTC platform Leap in November to help brands get into stores.

2. Who wants wholesale?

Brands want wholesale (in some shape or form), leading some to create or expand partnerships with mass retailers.

To improve customer access and visibility, brands may continue to seek out wholesale deals throughout the year, changing their traditionally strong preference for DTC e-commerce channels. 

In the second half of 2022, two big-name DTC brands announced their entry into wholesale, both in the hopes of promoting growth. In July, Glossier announced it had entered a wholesale deal with high-end retailer Sephora, which would begin sometime early in 2023. Additionally, home fitness brand Peloton started selling through Amazon in August, and just a few weeks later announced a wholesale deal with athletics retailer Dick’s Sporting Goods, which includes branded store spaces. 

And mass retailers are pushing to get newer brands in their stores, which could further grow the wholesale focus for DTC brands. Ulta’s new store format has a “Cue the New” space specifically meant to highlight brands new to the retailer so that customers can discover them more easily.

3. Profitability takes center stage

Growth at all costs? That infamous startup mindset isn’t exactly welcome going into 2023, due to a variety of market factors.

More companies have begun charting serious paths to profitability, with some noting how difficult it has been.

“The expectation to be profitable shifted overnight,” Everlane CEO Andrea O’Donnell said in a memo to employees about layoffs earlier this month, adding that “today’s tough decision is intended to set us up to improve profitability in 2023.”

While some are cutting costs to get an inch closer to profitability, others may be looking to new product categories to keep customers coming back. Product expansion seems even more important for brands whose core product may be a once-in-a-decade buy – such as mattresses.

Similar to how DTC mattress brand Casper has expanded into sleep gummies and nightlights, more companies could be searching for growth through product variety as the year progresses.

4. A fight for funding

Last year, venture capital funding slowed down quite dramatically. Data from CB Insights’ 2022 State of Venture report shows total global funding for the year was down 35% compared to 2021, and U.S. funding was down 37%. Globally, total deal volume fell by 4%, with IPOs specifically decreasing 31%.

In O’Donnell’s memo to Everlane employees about the layoffs, the CEO noted: “It’s no secret that these are difficult times for venture-backed companies.”

However, funding – and even acquisitions – are not completely lost. Over the past couple of months, small brands like BloomChic and InnBeauty Project have raised capital, and Mielle Organics got acquired by Procter & Gamble. 

VC’s are more concerned about where they put their money, though. A newly proposed U.S. Securities and Exchange Commission rule – facing immense backlash by funders – would make it easier to sue investors for negligence and increase the amount of responsibility put on VCs when their startups fail, according to reporting by Bloomberg. 

With whatever funding is available, DTCs are likely to fight harder for it this year.

5. Traditional brands turn to DTC

Traditionally DTC brands may be looking toward wholesale, but several old-school companies are looking more toward DTC channels.

Since seeing its DTC business demonstrate growth in 2019, denim company Levi’s has doubled down on its focus to sell directly to consumers. As part of a larger goal to achieve $10 billion in revenue within five years, the brand said in June that it would invest more in the space with the hopes of getting DTC revenue to 55% of annual net revenue by 2027. Athleticwear giant Nike has also continued to invest in its DTC channel, announcing plans for stand-alone Jordan brand stores, and has decreased its wholesale presence with partners like Foot Locker.

With macroeconomic headwinds in full force, brands may continue to diversify their customer touchpoints beyond what they’ve traditionally done.

6. Sustainability gets trickier

While it is already difficult for retail to decrease its negative impact on the environment, a variety of factors will make that harder throughout 2023.

Younger consumers, such as Gen Z, are increasingly interested in brands' environmental impact. An October 2021 Simon-Kucher & Partners study showed that 60% of respondents said sustainability was an important factor in purchase decisions, and Gen Z in particular feels strongly about the topic. The ethical demands from that generation are even impacting grocers’ online presence.

And that pressure is expected to increase, according to a study of retail executives released by Deloitte in January. Sixty percent of surveyed executives said they expect increased scrutiny of ESG (environmental, social and corporate governance) practices this year.

However, with brands focusing more on staying above water amid economic distress, some of those ESG goals and initiatives might be put to the side. The same Deloitte study showed that over half of executives are planning minimal or no ESG investments this year, favoring margin enhancement opportunities amid market volatility.

But for brands still looking to tout their sustainability claims, the Federal Trade Commission might be keeping a closer watch on the reliability of such statements. The FTC announced in December that it was seeking public comment on potential updates to its “Green Guides,” a set of guidelines last reviewed in 2012, which aim to help brands avoid using unfair or deceptive statements to mislead consumers. Citing the difficulty consumers face in verifying sustainability claims made by brands, the FTC is hoping to make that easier by tackling marketing claims head-on. 

7. DTC brands turn to discounts

Never say never, especially when it comes to discounting. After 2022 inflated inventory levels for brands, the start of 2023 isn’t exactly spreading hope that consumers will start spending heavily again.

In the past, several DTC brands made it a point to not discount their merchandise. Now, to help clear space, some are reconsidering.

Athletics company Lululemon has moved in this direction, offering a “rare-for-them” discount this month likely stemming from their well-known elevated inventory levels, according to emailed comments from BMO Capital Markets analyst Simeon Siegel.

Some cult-favorite brands like Glossier can even be found at off-pricers such as T.J. Maxx, according to Reddit posts on the r/glossier forum.

If the current state of the economy continues or worsens, more brands might increasingly look to deals. Allbirds co-CEO Joey Zwillinger during a November earnings call said the brand expects “persistent inflation and high levels of promotional activity” in the fourth quarter.

8. Brands weigh the costs of returns

With cost cutting being so important for brands at the moment, it is no surprise some might turn an eye to the high prices associated with shipping and delivery.

Free returns in particular have become a point of contention across the entire retail industry, with consumers expecting such services at no cost while brands look to save wherever they can. Returns were on the rise this past holiday season leading up to the end of the year. And some larger retailers, such as Zara, have already signaled that free returns don't need to be the standard and have opted to charge for some returns.

Diminishing the chances that a customer will even want to return an item would surely help, and virtual try-on technology has the potential to help shoppers feel more confident when buying items like makeup or apparel online. Larger companies such as Walmart, Victoria’s Secret and Amazon have all launched features to help customers try before they buy and improve size identification.

If smaller DTC brands can afford the investment, that tech might help with decreasing return rates. With retail sales having missed some analysts' expectations in December, nothing is off the table for brands looking to save some money.

 

After years disrupting traditional retail, many startups and online pure-plays, including DTC brands, are now running into a new reality. Even usually bold venture capitalist investors have grown more discerning about where they put their money in the current inflationary climate, where money is not so cheap. As a result, several players are under pressure to pivot from a mindset of “growth at all costs,” to a focus on profitability.

The DTC space is a major beat for Retail Dive reporter Dani James, who joins The Backroom as podcast co-host. Because of the importance of and volatility in the area of direct-to-consumer sales, both at upstarts and legacy brands, Retail Dive has launched a daily newsletter roundup of such stories from her and the team — you can sign up for that here.

In this episode of The Backroom, Dani and senior reporter Daphne Howland talk about the big picture for DTC companies, the importance of brick and mortar and more as 2023 gets going.

Resource links:

• 8 DTC retail trends to watch in 2023
• 12 digital natives that have learned to love old-fashioned retail
• Why some digital natives are always tweaking their models
• Retail disruptors are turning to layoffs to cut costs and restructure