It’s no secret that last year saw a dramatic slowdown in venture capital funding. In fact, it was the sharpest drop in deals in over two decades. We know tough market conditions will persist through 2023, which means VC investors will remain surgical in diligence and focused on investing in companies with strong unit economics and healthy contribution margins or profit — especially in the retail and ecommerce ecosystem.
Across the board, retailers have slashed budgets in this new normal of high interest rates, expensive cost of capital and supply chain crises. On top of this, some retailers have faced delays in new store openings, higher capital expenditure and increased cost of goods — all making four-wall profitability even more challenging.
It’s hard to have a solid foundation or a competitive advantage without healthy metrics. To achieve positive ROI in 2023, bricks-and-mortar retailers need to focus especially on how they construct buildouts, sell inventory, track supply chain, market products and staff employees to help offset negative macroeconomic trends.
Cutting costs through technology efficiencies will be arguably the most powerful tool for retailers and ecommerce brands in 2023. Because of this, venture capitalists are bullish on technologies that can drive revenue and cut costs for companies in the year ahead.
Let’s take a closer look at some of the biggest line items for retailers and brands — and where technology can help.
Staffing and labor challenges
Labor is one of the largest and most expensive problems facing retailers today. We’re seeing a record-low labor participation rate, increased turnover and the fact that businesses have to pay more to train, attract and retain talent due to inflation.
On top of that, a significant portion of the workforce doesn’t want a long-term relationship with one employer, but flexibility and independence. Shiftsmart has tapped into this massive need and has developed a tech-powered staffing solution for retailers. Shiftsmart matches its network of 2 million workers (and growing) to jobs at the shift level for employers across various industries and use cases. It handles the training, management and payment of these workers, which offloads time and costs from employers and has been a game-changer for clients like Circle K, Levi Strauss & Co., Subway and the RealReal.
Aged inventory and improper prediction of consumer demand
Generally, retailers today no longer want to be associated as “discount retailers,” which makes promotions less of a means to get rid of excess inventory. But at the same time, retailers are currently sitting on a record $732 billion in excess inventory.
Nailing down working capital needs is especially important, and companies like Syrup Tech, which offers AI-powered predictive software for inventory decisions, are helping retailers do that. Additionally, the rise of resale software is an alternative means to address excess inventory. Companies like Reflaunt, a white-label technology company that helps firsthand retailers implement secondhand trade functionalities, and Archive, which is a circularity platform for brands, are providing immense value for brands.
Poor and archaic understanding of data
Understanding the numbers and holistically distilling customer data is complex. Retailers and brands need to centralize and get a handle on true demographic information, repeat rates and predictive lifetime value of a brand’s consumer base.
Learn more about the innovative technologies helping retailers.
Companies like Black Crow are using machine learning to help ecommerce companies understand their customers better, which ultimately leads to higher conversion rates, longer lifetime value and the ability to understand attribution better. For brands affected by iOS updates, primary data has become gold. Beyond ecommerce, platforms like Hivery are attempting to automate archaic and traditional industries like grocery and convenience retail through AI-driven data analytics to drive higher velocities. Hivery utilizes hyper-local retailing to personalize the product mix, space, promotion and price at the physical store level by using data to know what placement leads to faster sell-through at a specific location.
Logan Langberg is a member of the NRF Innovation Advisory Committee and a partner at Imaginary Ventures. Imaginary Ventures is a commerce-focused VC fund with $1B+ AUM that has invested early in brands like Skims, Farfetch, Grin and Black Crow.