Three Strategies to Employ in 2023 to Boost Retail Profitability in Spite of Inflation and Economic Uncertainty

The post-COVID-19 retail recovery hasn’t quite gone according to plan. However, during the height of the global pandemic, brands showed that they’re not just able to quickly pivot to overcome roadblocks; in fact, many have been tremendously resilient in the face of extraordinary circumstances. Adapting to our current economic realities is no different — it will require a mix of creativity, technology and agility.

Forrester predicts retailers, which are already facing operational and supply chain challenges, will react to the uncertainty in 2023 by shifting to managing rising costs by rolling back offers such as free returns or delivery, and investing in optimization technologies such as order management systems. Forrester also notes that over the past few years, retailers focused heavily on their ecommerce business and in-store fulfillment; as a result, they found out the hard way that their legacy and outdated technology stack impacted their agility and ability to respond to changing consumer behavior.

With consumers pulling back on spending due to rising prices, retailers must evolve as well. Retail is already changing. One good example is Black Friday: holiday sales and discounts are starting earlier every year. Thanks in some part to Amazon’s October Prime Day, Black Friday is no longer a one-day event that occasionally culminates in shoppers fighting over a doorbuster sale on toasters. Discounting and perks like free shipping have been successful drivers of Black Friday and Cyber Monday campaigns; however, dropping prices is not a winning strategy that creates a path to profitability. In fact, not only does discounting eat into margins, it reduces Average Order Value and Customer Lifetime Value as a result.

As 2022 wraps up, it’s time for a “reset.” The following three strategies will help brands set a new course and put them in a better position to succeed in 2023:


  • Modernize the merchandising function by using AI to handle complex and comprehensive strategies and create more seamless shopping journeys.

The merchandising function needs a major upgrade in 2023. Traditionally, merchandising has been more of a back office function, with teams focused on finding and buying the right products and putting them in the right locations in-store. The first digital generation for merchandisers was the ability to create rules without IT involvement. These first-generation technologies are being outpaced with third-generation technologies built around AI.

With assistance from AI, the role of the digital merchandiser can be much more than just administrative and provide far more value to retailers by contributing to more personalized, optimized shopping journeys. Merchandising teams can then spend more of their time being strategic, applying AI algorithms to help sell more products in a specific category or boost margins, for example, as opposed to being reactive, putting out fires and being hindered tactically by the limitations of outdated technologies.

  • Prioritize profitability and customer experience to help retailers fight the impact of inflation.

When Target announced its profits decreased by 52% in Q3 in November 2022, blaming inflation, changing consumer behavior and economic uncertainty, it sent a shock wave across the retail industry. While inflation has decreased somewhat, rising prices have created a lot of uncertainty for both brands and consumers. We may be facing rocky times ahead, but there is a glimmer of hope. The U.S. Census Bureau of the Department of Commerce reported in November that ecommerce sales increased 3% in Q2 2022 over the same period in 2021, while total retail sales increased by more than 9% compared to Q3 2021.

During challenging economic times, retailers’ natural inclination is to slash prices; however, brands must fight the urge to use discounting as a customer acquisition, conversion and retention strategy, which decreases margins in the process. The smartest way to increase margins and profitability in a down economy is by using AI to intelligently recommend higher margin products. Minimizing perks like free shipping and employing more efficient acquisition models will also fuel topline growth. The days of never-ending discounts may be a thing of the past, at least until inflation is under control and the economy is on firmer ground. The companies that take this approach will be in a much better position when that happens.

  • Engage with customers who prefer to remain incognito when shopping.

Nearly 73% of shoppers use guest checkout when making purchases online, which creates engagement challenges for retailers. Not only does it hinder repeat engagement and building loyalty, but anonymous shoppers also make it difficult to deliver a 1:1 personalized experience because no historical customer data exists. This isn’t as much of an issue for a global brand like Amazon that has trillions of customer interactions to base recommendations on, but for mid- and large-sized retailers, this is an issue that can only be solved by AI.

By using AI to understand the relationships of products and real-time data from customers, even anonymous shoppers, it’s possible to deliver highly relevant and personalized query suggestions, product rankings and product recommendations, without the need for a high volume of data, pre-defined persona segments or logged-in user profiles. AI can intelligently hunt for clues along the shoppers’ journey to determine the next best product to recommend, creating the best experience possible with minimal data.

Short of incentivizing customers to create accounts by offering discounts (which again cuts into margins) or providing first-party data via an online survey or hair type quiz, for example, the best way to encourage customers to log in and create an account is by delivering a great experience and high quality products they want to tell their friends about.

A new year provides new opportunities for brands to meet current challenges with fresh strategies using updated technologies and a more modern approach to merchandising that will help them leapfrog the competition and meet revenue and profitability goals in 2023. Yes, this might require that retailers rethink and upgrade parts of their technology stack. However, investing in their teams, advanced technologies and updated operational processes will future-proof retailer’s businesses and set them up for success.

Brian McGlynn is the General Manager of Commerce Solutions at Coveo. He has 20 years of experience in the high-tech industry has been focused on content management, search and ecommerce. McGlynn has held roles in sales, consulting and general management, with experiences spanning from start-ups to Fortune 100 companies like HP and IBM. Most recently, as General Manager of Intershop’s North American business, McGlynn led the organization’s recent growth in entering new market segments with B2C and B2B commerce offerings. At Coveo, McGlynn gets to converge his background in search, content management, customer analytics and ecommerce into Coveo’s Commerce business.

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