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Written by Kognitiv’s Strategy & Consulting Team
As we enter the second quarter of 2024, a few fascinating insights and trends for retailers have already been revealed. Driven by the evolving dynamics of consumer behavior, innovation, and market advancements, these trends are driving changes in the retail industry.
A common thread connecting these retail trends is the increased adoption of new technologies, notably AI. AI dominated the landscape in 2023 – it was the word of the year, ChatGPT surpassed 100 million users in only two months, and 42% of global enterprise-scale organizations embraced AI – and this trend is continuing into 2024. It is undeniable that AI is at the heart of the retail experience, heavily contributing to the inevitable shift from traditional to new business models. The majority of business owners expect AI to have a positive impact on improving customer relationships, increasing productivity, increasing sales, and saving costs. As brands integrate AI into the various facets of their marketing and overall business operations, we can expect that retailers embracing AI are likely to succeed, while those who don't might risk falling behind.
Here, we dive into four leading trends shaping the retail industry this year and how AI is fueling each of them:
E-commerce is flourishing. What we once thought was a temporary shift brought on by pandemic disruptions is here to stay. Global retail e-commerce sales continue to dominate, hitting an all-time high in 2023 at an estimated US$5.8 trillion – an almost 9% growth. Projections indicate 39% growth in retail e-commerce sales over the next four years, with expectations to surpass eight trillion dollars by 2027.
Despite online growth, offline retail sales are also growing and are predicted to account for 72% of the US market by 2028. The irony is that e-commerce is driving traffic in-store, where people are still craving in-person connections. With customers straddling online and in-store experiences, we are in a world where consumers’ demands of a unified experience across digital and physical haven’t slowed down – they want a consistent, seamless, and personalized experience across all touchpoints.
In order to meet the demands of consumers, brands will need to have a strong, cohesive customer strategy across digital and physical retail. That strategy begins with having a holistic view of the customer, including a deep understanding of their unique needs and interests. Retailers should aim to gain valuable customer data from every customer touchpoint/interaction. Even more important than just collecting customer data is being able to extract valuable, actionable real-time insights from that data to meet customer expectations.
This is where brands embracing AI will pull ahead of the pack. With the right AI-native tools, brands can analyze massive amounts of customer data to identify the unique needs, preferences, and behaviors of their individual shoppers By understanding these needs, preferences, and behaviors, brands can customize their marketing and product development strategies, and create hyper-personalized customer experiences to address those demands more effectively. This can result in increased brand affinity, stronger customer loyalty, and recurring purchases which are vital for driving revenue and growth.
It has never been more important to meet consumers exactly where they are on the path to purchase. But with nearly every digital channel, from Pinterest to Instagram, becoming a shopping channel, it has also never been more complicated.
Social media platforms have transformed simple networking tools into powerful retail channels, driving the rise of social commerce in 2024. Worldwide revenue from social commerce is forecasted to surpass US$6 trillion by 2030. Look no further than TikTok, where 4/10 users will buy a product after seeing it on the app. With over 5 billion social media users worldwide, social media platforms offer retailers unparalleled opportunities to reach and engage with their target audience directly through features such as in-app shopping, shoppable posts, and influencer collaborations.
As a result of the increasing influence of social media on consumer purchasing decisions, retailers are investing more resources in building their social commerce presence and are leveraging AI to produce tailored and impactful campaigns at scale. In 2023, 42% of US marketers said they used generative AI (GenAI) for the purpose of social media copy and 39% for social media images. Beyond GenAI, AI is enabling brands to create hyper-personalized experiences for their customers by identifying the best content, channel, and time to reach each customer, and optimizing campaigns in real time to help brands achieve their objectives more consistently and efficiently. The goal isn't just to make noise online, but to convert that noise into measurable ROI and long-lasting customer relationships.
Brick-and-mortar retailers face unique challenges in an increasingly digital world. To thrive in 2024, retailers must focus on creating unique and memorable customer experiences.
A trend that has gained significant momentum is the concept of ‘phygital’— we have entered a world where consumers experience a combination of physical and digital at the same time. At a time when consumers’ expectations are constantly evolving, it comes as no surprise that they now desire the convenience of digital solutions but don’t want to miss out on the in-person connection of physical experiences. Whether filling a digital or physical shopping cart, the path to purchase often starts online with consumers reporting that their journey starts with online research about a product or service, price comparisons, and reviews. More than half of consumers rank search as their top source for pre-purchase information.
But don’t forget, consumers still find value in in-store shopping, which allows them to engage their senses by touching, seeing, smelling, and hearing products, an experience that digital cannot replicate. However, 56% of global in-store shoppers used their smartphones to shop or research items while they were in a store in the past week.
Retailers have been concentrating on providing consumers with an ‘omnichannel’ approach – delivering a unified and consistent brand experience across all physical and digital channels – and ‘phygital’ is the evolution of how retailers can best engage with their consumers. Blurring the line between technology and in-person allows retailers to take the best elements of each and use them to enhance the performance of both while delivering a better customer experience.
Here’s how some retailers are leading with their phygital strategies:
Retailers are investing in technologies that foster a cohesive integration of physical and digital channels, allowing customers to engage with brands across various touchpoints and benefit from a more convenient experience. 80% of consumers believe that the merging of the physical and digital worlds will create a better customer experience. The goal is to provide consumers with a consistent phygital experience to deliver unforgettable, personalized experiences across online and offline touchpoints – with the use of technology and data to deliver value to every customer.
Combining real-time insights and customer data, this year we will see brands use AI to target consumers with hyper-personalized content at scale, throughout their unique journey, delivering truly customized experiences across all platforms.
In the world of retail, customer loyalty is the ultimate goal. Retailers strive to cultivate and sustain a robust customer base, one that not only remains loyal but also advocates for their brand through word-of-mouth. Yet, given the tough economic forecast for 2024, consumers are expected to take a more thoughtful stance on their spending, posing a risk for retailers.
The perception of value will differ among people and products, centering on discounts and rewards for loyalty. It proves significantly more economical for retailers to maintain their current customer base rather than pursue new audiences, and this is especially true during periods of economic uncertainty; therefore, bolstering customer loyalty programs will be essential for retailers as they endeavor to safeguard both profits and market share.
According to Deloitte’s 2024 Retail Industry Outlook, more than half (54%) of retailers plan to strengthen their loyalty programs this year. The Deloitte survey reveals that consumers’ loyalty program preferences and expectations are evolving. While financial benefits are still top of mind — largely thanks to inflationary pressures and tightened household budgets — consumers are increasingly seeking services and experiences that truly reflect their journey and growing relationship with a brand.
To fulfill these expectations, brands will need to see and understand their consumers. AI can be the distinguishing factor between mediocre and outstanding loyalty programs. It enables retailers to view their customers as unique individuals rather than mere statistics. Retailers can leverage AI analytical tools to glean enhanced customer insights and predict future behavior, enabling them to deliver personalized loyalty campaigns and experiences at scale. And why is it so important to get it right? 77% of retail consumers stated they would react favorably and boost their spending at a retailer if their preferred loyalty benefits and experiences were offered (Kognitiv Global Loyalty Insights, 2023).
What can we take away from these trends?
In the complex 2024 retail environment, one principle stands out: adaptability is crucial for surviving and thriving. Retailers leveraging artificial intelligence and machine learning technologies and solutions can create a more accurate, multi-faceted view of each customer generating not just descriptive, but also predictive and prescriptive insights. This allows brands to accelerate their decision-making, deliver more impactful personalization, and enhance the customer experience, enriching the overall shopping journey, and deepening customer loyalty and engagement with the brand.
Find out more about how you can leverage AI and machine learning for your retail business. Let’s chat!
