AI Chatbots, Red Sea Routes, Inflation Vs Consumer Confidence And More (2024)

UK inflation dropped and UK consumer confidence rose. Americans, on the other hand, think we’re in a recession yet are spending like it’s a hobby (literally). Retailers seem to have adjusted to Red Sea disruptions, in the US importing more than ever this summer. But consumers have increased their wariness of online marketplaces, while store employees feel less and less safe. Chatbots are great for companies, but not so great for consumers, and game shows may be coming to a mall near you (if you live near the Mall of America). Let’s dive in to this week’s retail news.

Retail Economic Indicators

One open question from the beginning of this year was whether the disruption of shipping routes through the Red Sea would have an economic impact at a time when governments are working hard to fight inflation. The answer is, sort of. Reports find that 9 out of 10 large container ships are diverting from the Red Sea, which normally handles 15% of global shipping traffic and 30% of container trade. Going around the Cape Good Hope in South Africa adds about 2.5 weeks in traveling times. And so rates are up 30% in the past few weeks. However, given that there was already some slack from the post-pandemic bullwhip effect, overall that “up 30%” is still pretty close to pre-pandemic container prices. Shipping companies are happy enough – they’re raising their outlook to positive guidance after previously warning of potential losses.

And retailers appear to have adjusted. In the US, the NRF port tracker report shows 5-10% year over year growth is expected for imports during the summer months, reflecting retailers’ adjustment to both the Red Sea and also the drought-imposed limits through the Panama Canal. Across all three major ports in the US, import volumes are expected to be above 2 million TEU’s monthly into early fall, a first.

In the UK, inflation took a nosedive and fell to 2.3% in April vs. 3.2% in March. Falling gas and electricity prices were the biggest downward contributors – they feel by 27.1% in the year to April 2024, which is the largest fall on record (going back to 1989). Food prices rose 2.9% in the year, down from 4.0% in March.

And funny thing, consumer confidence then recovered in May, based on GfK’s consumer confidence monitor. It’s still in negative territory according to its index, but there was lots of good news in the numbers: 3-point rise in overall confidence (to -27 in May), 5 point increase in personal finance forecast to -8 (which is 17 points higher than May 2023), and the major purchase index is up 4 points to -24, 11 points higher than May 2023.

I like to take a global view as much as possible, but English language reports on other regions can be hard to come by. This week, however, saw two in particular that gave insights into markets where it’s harder to get good numbers easily. First up is India, with ASOS announcing a partnership with Reliance Retail. In that announcement, they shared that the fashion market in India is expected to grow at a CAGR of 5.2% between 2023 and 2028. The growth is expected to be driven by a rising middle class and a growing urban population that is interested in keeping up with fashion trends.

The second up is Nigeria. This article is mainly covering a company called Omnibiz, which provides services that help retail get more organized in the absence of government and other infrastructure support. But in covering these benefits, the article also highlights the challenges behind them, which are many: limited access to capital, inadequate trade facilities, unreliable stock delivery (and challenging logistics in general with poor roads, unreliable power, and heavy bureaucracy), as well as insufficient preservation methods for perishable goods. That’s in general for Africa, but in Nigeria it’s additionally compounded by high interest rates and tight lending policies.

Someone wanting to buy a dress would have to pay for the dress and wait for it to be made, because the person making the dress would be unable to buy the material without the up-front payment, and can hardly predict when the dress will be ready given the supply chain behind it. And doing business this way prevents any economy of scale.

I see a lot of retailers these days looking to expand rapidly globally, and thinking that from an IT perspective they can have one universal solution that serves every country, 24/7. Aside from maintenance windows alone, this picture of challenges in a developing market like Nigeria says that this expectation is just not realistic.

Retail Tech & Research Data

Here’s a great one-two punch. Most of America thinks we’re in a recession, and Morning Brew breaks down why that is completely not true. And also, some careful research by Stanford University, Northwestern Northwestern University and the Mastercard Economics Institute proved out that when consumers work from home, they also shop more than when they are in the office. They estimate that the benefit of this additional spending was $375 billion more in 2023 alone. And forget about cyber Mondays, Adobe Analytics also found that peak shopping hours are between 10am-1pm on Fridays. The university researchers looked at county-level data, comparing counties where WFH was prevalent and found outsized spending gains vs. counties where in-person work is more prevalent. That pretty much sums up the whole of the first half of 2024: consumers think everything is terrible, but spend like it’s not.

Consumers are shopping more, but they’re also upping their wariness of the wild west of the internet. A new survey by Spokeo, a search engine provider, found that 98% of consumers surveyed have at least one fear about shopping on an online marketplace. This was defined in a way that included Craigslist, Facebook Marketplace, and OfferUp as well as Instagram Shop and TikTok Shop. Having experienced the cesspool of fraud that is Facebook Marketplace first hand (are there any legitimate buyers on that service?), I can put myself in the 98%. And it’s odd, because I’ve seen commentary lately about how Facebook Marketplace is “the one good thing” about Facebook these days, but I definitely have not had the same experience. The article covers a laundry list of fears, including fake or wrong products, bad item condition, payment fraud, having personal payment details stolen, or challenges getting a refund when something goes wrong.

Stores don’t seem any safer, these days, at least not for the workers staffing them. Theatro published a 2024 Retail Worker Safety Survey, conducted by Pollfish, which surveyed 600 in-store workers in 15 of the largest metro areas in the US. 80% said they are scared “every day”. 72% have experiences incidents where staff could not respond to a threat because their store was understaffed. 73% are actively considering leaving their jobs and 64% would consider suing their employer over a store crime incident. It doesn’t sound like that would make for a great experience for shoppers, either.

AI & Retail

If you haven’t heard the term before, “uncanny valley” is soon going to enter the popular consciousness as AI gets more and more realistic. It’s the concept that encapsulates humans’ discomfort with technology that gets close to human realism, but is still not quite. The closer it gets to looking and sounding human, the more the discomfort grows, until theoretically it gets to where you can’t tell the difference. I thought that was going to be the point of this article, which discusses why companies may love chatbots, but consumers hate them. However, it was something else entirely – a really great rundown on usability for chatbots that every retailer should read. At the end of the day, even a pretty good chatbot puts more cognitive load onto the customer than talking to a call center rep does, and this is why consumers don’t like them. But you can alleviate a lot of that frustration by giving clear guidance and exit points.

Ultimately, any consumer weighs the cost of their time vs. the expected value they’ll get by waiting. If you can’t show up front that if their problem turns out too difficult to solve then they will be able to actually get to a human, then their tolerance of your chatbot asking them a million questions or trapping them in a logic loop will fall to zero. Yes, chatbots address the 80% that are easy questions like “where’s my stuff?” but you can’t then just kick the 20% to the curb because they don’t fit in the 80% - that 20% group, with the harder questions to solve, are the ones that will leave you forever if you can’t help them.

Retail Winners and Losers

This happened a few months ago in the UK, which is now seeing inflation ease off substantially, so I’m hoping that this is the beginning of a real slowing of inflation in the US: Target Target announced they are cutting prices on 1500 items. That’s 1500 now and “thousands more” over the summer. And then Amazon Amazon Fresh announced discounts on food items, touching up to 4,000 items across the store with discounts as deep as 30%, and including both national brands and private label. And then McDonald’s, Wendy’s and Burger King got in on the game with a meal deal price war, while Aldi also said it was dropping prices on more than 250 items in May. The important thing to watch is if these price drops actually grow unit sales or not.

And, can I say “I told you so”? The US Consumer Finance Protection Bureau announced that they are going to classify BNPL companies as credit card providers, which subjects them to more rules than they have experienced up until now. It doesn’t put them straight into a category where they must report consumer balances or delinquencies to credit bureaus, but it does require BNPL companies to produce billing statements, as well as the right and mechanism to dispute charges and to demand a refund from a lender after returning a product purchased with a BNPL loan. In the study used to justify the rule applicability, the CFPB found that more than 13% of BNPL transactions involved a return or dispute. In 2021, that impacted $1.8 billion in transactions across 5 of the providers that were examined. Comments on the rule are open until 8/1/24.

Store Innovations

Walmart Walmart is trying again with its Neighborhood Market stores, testing out a bigger format. They plan to open or convert more than 150 stores in the next 5 years, mostly to the benefit of the Neighborhood Market brand. They’ll be larger than the last go-around by about 17,000 square feet on average. The space will go to omnichannel – more space for pickups and deliveries – as well as a broader fresh assortment.

Mall of America is going to open an on-site, live, game-show-style “amusem*nt center”, including a game show host and buzzers. Games will include trivia and “races” (can’t wait to see the waiver for that one). In a similar vein, Ralph Lauren has renovated its Michigan Ave store in Chicago to include a restaurant and a coffee shop and an emphasis on tailoring and digital displays. It’s supposed to be “inspired by” Gilded Age décor and motifs. While that may not seem like anything approaching live game shows, it’s still investing in experience.

The Bottom Line

What did I learn this week? I think I learned that there is a definite lag between when economic news starts to look up and when consumers feel it. That lag can be a few months, or several, which means at least in the US, we may see consumer positivity as soon as next month, or as late as September. We also have a challenging news environment, with high mistrust in “mainstream” news, which could be contributing to US consumers’ outsized pessimism. But I can’t shake the notion that in January, a bunch of UK retailers (mainly grocery stores) announced price cuts, and in April, inflation eased, and in May, consumers reported a jump in confidence about their personal situations. With that timeline, price cuts in May in the US mean a bigger drop in inflation in August, and a leap in consumer confidence in September. Should be easy enough to check me on this one – stay tuned!