Retail Industry: 16 Common Challenges and Their Solutions

In recent years, retailers have been grappling with a variety of significant challenges, as inflation has pushed prices higher, security breaches have put consumer data at risk, supply chain disruptions have derailed timely deliveries and brick-and-mortar stores have shuttered. And, of course, one of the biggest ongoing challenges is engaging today’s empowered consumers, who are just a click away from competitive offerings.

The good news? The retail industry is poised for growth. In the U.S. alone, retail sales in 2023 are predicted to surpass $5 trillion, a 6% increase over 2022. Worldwide, total retail sales are expected to ring in at close to $30 trillion in 2023.

This spells opportunities for retailers that proactively develop customer-centric strategies to drive loyalty and harness advanced technology to automate processes and improve staff training and productivity. This article explores the many challenges retailers are facing, along with solutions that can better position their businesses for success.

What Are Retail Industry Challenges?

The retail landscape shifted irrevocably in the 1990s, courtesy of the Internet and ecommerce, which intensified competition for consumers’ wallets — a phenomenon that continues to this day. In addition, high employee turnover and supply fluctuations persist, impacting retailers’ ability to provide a consistent, positive customer experience.

Smart retailers are meeting these challenges by delivering a seamless omnichannel experience that reaches customers at all touch points, employing strategies to build brand awareness and customer loyalty, and implementing custom training programs and engagement techniques to retain top talent.

Key Takeaways

• Retailers are embracing a variety of tech innovations, including artificial intelligence and automation, to attract customers.
• Retailers are putting comprehensive talent management strategies in place to cultivate internal mobility, increase job satisfaction rates and retain valuable talent.
• To compete with direct-to-consumer brands, retailers can create integrated shopping experiences to provide customers with more convenient and flexible ways to shop.
• Cloud-based retail solutions allow for real-time visibility into a company’s financial information, customer data and inventory levels, among other features.

Retail Challenges Explained

With the rapid growth of ecommerce disrupting traditional brick-and-mortar retailers, many physical stores and shopping malls have experienced a decline in foot traffic, while others have closed their doors altogether in recent years. In the first six months of 2023, retailers announced plans to shutter about 3,365 stores, a figure that’s nearly four times the number of store closings announced in the first half of 2022, according to the National Retail Federation (NRF). In addition, inflationary pressures have led to increased competition among retailers as they hustle to attract customers who aren’t necessarily brand loyal and instead shop wherever they can get the best deal.

Meanwhile, retailers are struggling to retain employees, with turnover rates as high as 75% in retail, prompting many companies to upskill their workers. At the same time, ongoing disruptions in the global supply chain have led to inventory shortages, requiring retailers to invest in more efficient inventory management systems while continually seeking out alternative suppliers to meet customer demand.

16 Retail Challenges and Solutions

From converting one-time customers into repeat shoppers to managing inventory and fine-tuning communication efforts, retailers are facing numerous challenges. Beyond just pointing them out, here’s a look at some proposed solutions for overcoming these obstacles.

1. Managing Inventory Overhead

When a retailer runs out of stock, it loses the opportunity to make a sale. On the other hand, if a business overestimates demand and fills its warehouse with a glut of merchandise, it incurs higher holding costs and losses from eventual markdowns.

To effectively manage inventory overhead, retailers can invest in retail inventory management systems that offer real-time tracking and demand forecasting to optimize stock levels. In addition, some companies use a just-in-time inventory management approach, which allows for an item’s production to move ahead when an order is placed, minimizing excess stock and reducing holding costs. Inventory cost accounting methods for tracking the costs associated with their inventory also helps companies order and price products, as well as identify ways to control costs to increase profitability.

Another tip: By maintaining good relationships with their suppliers, retailers may be able to negotiate more favorable terms, including bulk purchase discounts and flexible payments.

2. Hiring and Retaining Talent

Retailers depend on their employees to provide an excellent customer experience, yet hiring experienced employees with the appropriate skills can be difficult. What’s more, retaining talent is an ongoing challenge, particularly in a competitive job market with high turnover. One survey found that in 2022, retailers grappled with a 75% turnover rate for hourly in-store positions.

On the flip side, employees have high expectations of their employers: They want their companies to share their values, and they also expect a positive work culture and opportunities to advance. Yet many employees say they aren’t given enough chances to advance. For example, 43% of retail associates said they believe that adequate training and upskilling is key to success and happiness, yet 31% said it’s not available to them, according to a 2023 survey.

As retailers well know, workers will seek those opportunities elsewhere if their current employers don’t offer them. To improve job satisfaction, retailers can help close skill gaps and allow for internal mobility with training that incorporates online learning management systems and gamification software that engages workers and helps to improve performance.

A comprehensive talent management strategy that incorporates a plan for retaining valuable employees — who the organization invested the time and money to recruit, onboard and train — also can combat turnover. This plan could include a competitive pay and benefits packages and formal recognition and rewards for employees’ hard work, such as year-end bonuses. The adoption of a human resources management system is another consideration to efficiently manage employee retention initiatives and related data to help with every step of the employee life cycle.

3. Driving Qualified Leads

Attracting the right shoppers is the first step toward converting them into paying customers. But this remains a challenge. The average conversion rate in 2023 across ecommerce businesses hovers at only 2%. Intense competition among retailers can make it difficult for a business to stand out and capture the interest of consumers.

To drive qualified leads, retailers need to develop marketing strategies that include a robust online presence, including social media platforms. Offering incentives, such as a discount on a first purchase in exchange for an email registration or newsletter subscription, is one way to build a list of qualified leads. This information can also help fuel personalized, targeted advertising campaigns.

As retailers take customers through the sales funnel — from awareness, to consideration, to purchase — they must fully load the shopping experience with touch points that encourage engagement. For example, to create awareness, an ecommerce retailer selling high-end electronics might use targeted social media ads to highlight new products and leverage influencers to create buzz. To further pique a customer’s interest, the retailer might create engaging blog content and post product reviews on its website. To convert a lead into a purchase, the retailer could send personalized emails with exclusive discounts or incentives, such as free shipping, to customers who added items into their shopping carts.

4. Tracking Leads Online

Retailers that track their leads through the sales funnel have a wealth of insight at their fingertips that can ultimately help them convert more shoppers into customers. Analysis of key performance indicators, such as the number of visitors, customer conversion rate, average basket size and cart abandonment rate, can inform strategies and tactics that influence shoppers to click on the buy button. It can also uncover issues that may be getting in the way of shoppers seeing their purchase through, such as a complicated checkout process, high shipping costs or lack of customer support.

Retailers can take advantage of ecommerce and business analytics tools to gain real-time visibility into their operational and financial performance. In addition, customer relationship management (CRM) software can track marketing-generated leads online and manage the entire customer pipeline process. CRMs can also be paired with marketing automation, giving marketing and sales the ability to view and track leads and measure return on marketing investment.

5. Getting Repeat Customers

Attracting customers to make a one-time purchase is difficult enough, but encouraging repeat business and long-term loyalty can be even more challenging, particularly now that price-conscious consumers have easy access to a wide range of online retailers to compare offerings. One important way to encourage repeat business is to analyze customer data to create personalized, omnichannel marketing strategies and messaging across various channels, such as social media, email and text. Developing a loyalty program that offers points, discounts, exclusive access to sales, free shipping and other rewards with each purchase is another tactic.

Exceptional customer service should also be a priority, including helpful, timely responses to inquiries and concerns, which, in turn, can boost customer trust and retention.

6. Managing Internal Communications

Managing internal communications in the retail sector can pose challenges, given that employees often work part time on different schedules and in various geographic locations. Consistently getting messages out to them also can be tough during peak seasons when staff members are hustling. Yet when internal communication isn’t smooth, confusion can result, putting the business at risk of missing its goals.

Retailers need to devise structured communication plans, outlining how information will be disseminated, so employees are aware of the channels they need to check to receive information in a timely manner. Digital collaboration platforms, such as mobile messaging apps like Slack, can provide a centralized place for sharing policy updates and other important information in real time. These channels can also be used for collaboration among team members, allowing employees to swap schedules, for example, when needed. To avoid communication overload while also keeping workers well-informed, streamline messages so that actionable, on-point information and updates are sent only when needed.

7. Creating a Positive Customer Experience

Whether shopping online, in-store or across both channels, customers expect a frictionless, personalized experience that, for example, serves up curated product recommendations based on their specific interests. These expectations require retailers to adopt a consumer-centric approach focused on ensuring a convenient and painless customer experience at every point across the buyer journey, from a customer’s first visit to a retail store or website to a request for post-sales support.

To create a positive customer experience, retailers must prioritize excellent customer service. Online that means intuitive navigation, detailed product listings and easy ways to contact customer support. One way is through the use of chatbots, which can help customers with simple, common issues or redirect them to live support. Within physical stores, staff should be trained and empowered to handle complex customer inquiries and concerns quickly and professionally. In addition, all retailers should frequently seek — and respond to — customer feedback by conducting post-purchase surveys and gathering customer input from social media channels, all of which can be used to improve the customer experience. For example, if customers are complaining about an arduous return process, a retailer might cut out a few steps or relax the amount of time they have to return their products.

Retailers can also leverage digital tools that help them better understand their customers, including their purchase histories, demographic information and preferences for outreach, to build better relationships.

8. Rise of Direct-to-Consumer Brands

Direct-to-consumer (DTC) brands, which sell goods directly to shoppers without using retailers as intermediaries, have become increasingly popular. Because they rarely maintain physical retail stores, DTC brands often sell products at lower prices than their more “traditional” online and offline competitors. In recent years, DTC brands have mushroomed, with U.S. sales online anticipated to reach $213 billion in 2023, up 66% from 2021’s $128 billion.

To compete with DTC brands, retailers can create integrated shopping experiences that provide customers with more convenient and flexible ways to shop. For example, offering in-store pickups and returns for online purchases provides customers with the peace of mind that they can order products without incurring extra shipping fees to receive, return or exchange items. In addition, retailers should always be prepared for possible supply chain disruptions, which can lead to stockouts and shipping delays. Effectively managing the supply chain ensures that retailers have access to the optimal amount of goods that can be delivered to customers quickly and efficiently, helping businesses maintain a competitive advantage.

Retailers can also benefit from conducting retail benchmarking to identify performance gaps and other areas in need of improvement to keep pace with competitors, including DTC brands.

9. Using the Latest Retail Technology

It can be tough for retailers to stay on top of the latest retail technology available to help streamline processes, cut costs and anticipate customers’ needs. A wide variety of technology has emerged in recent years, including automated inventory management, chatbots to handle customer inquiries, virtual reality for product “sampling,” and digital wallets for convenient and secure payments.

One additional area retailers might also consider investing in: livestream shopping, also known as live or social commerce, which involves hiring influencers to host live shopping events on social media and other channels to sell products and interact with customers in real time. In 2022, livestream ecommerce sales were estimated at $17 billion; by 2026, that figure is predicted to rise to $55 billion.

To gain more insight into customers and anticipate their needs, retailers can implement retail predictive analytics to analyze customer behaviors and identify future trends. Retailers can also leverage predictive analytics to forecast demand, optimize inventory levels, choose pricing strategies and tailor promotions to different customer segments.

10. Managing Staff Well-Being

Retail workers deal with a variety of stressful situations, from handling impatient customers and juggling repetitive tasks to managing heavy workloads, much of it while on their feet. Plus, they often earn relatively low pay. According to the U.S. Bureau of Labor Statistics, the median annual salary of a retail employee in 2022 was barely $31,000.

When employees feel stressed for an extended period of time, they can experience exhaustion and burnout, leading to higher absenteeism, lower productivity and increased employee turnover. One 2022 survey found that two out of every five retail associates felt that their mental health had taken a nosedive, and nearly one in four reported feeling high anxiety levels in their roles.

In addition to providing employees with competitive pay and benefits, retailers can take additional steps to improve their staff’s well-being, such as offering an employee assistance program that provides confidential counseling services and access to wellness apps, as well as ensuring workers take breaks to recharge. An atmosphere in which workers feel psychologically safe to share their opinions, have the autonomy and bandwidth to do their jobs properly, and regularly receive words of appreciation can also go far.

11. Navigating Siloed Marketing Infrastructure

Name a marketing channel or function, and it likely has specialized software to handle their tasks. Indeed, many companies still struggle with siloed marketing infrastructure that don’t “speak” to each other, increasing the likelihood of a duplication of efforts, inconsistent messaging and a waste of valuable talent who spend too much time piecing together disparate data.

To overcome these challenges, companies should integrate or replace their various marketing systems in use with a centralized CRM solution that aligns marketing efforts and messaging, centralizes and analyzes data, and ensures everyone is working together toward shared business goals. This also allows for greater collaboration, especially when integrated with an enterprise resource planning (ERP) system, which connects marketing to other areas of the business, such as finance and inventory.

12. Managing Staff Productivity

It’s imperative for retailers to track staff productivity to ensure employee output meets expectations, to balance workloads and to understand overtime costs and attrition — all of which impact business performance. Human resource management software goes a long way toward managing and increasing workforce performance, as well as identifying declines that, for example, could indicate employees may be planning their exit strategy, are overworked or are just in need of motivation. Along those lines, retailers can incentivize employees with bonuses, gift cards, profit-sharing and other monetary rewards in an effort to boost productivity, performance and company morale.

13. Hedging Data Security Concerns

The cost of a data breach has skyrocketed, with retailers shelling out nearly $3 million per incident, according to IBM Security. Indeed, hackers frequently target and steal sensitive customer and business data, which they may hold for a costly ransom. Not only do retailers suffer financially, but they can also lose customers’ trust in their ability to secure their data.

Static approaches to security policies can quickly become outdated, leaving data vulnerable. One important step retailers can take to mitigate risk and ensure greater data security is to develop sound data governance, starting with creating a comprehensive security strategy and policies for managing data, including what a business should do, and who does what, in the event of a breach. In addition, use of a data management system that secures data with encryption, enforces strict authorization (such as roles-based access control), and provides backup and recovery tools can protect retailers’ information from cybercriminals.

14. Figuring Out Localization

The digital revolution has made it easier for retailers to expand internationally. But that’s easier said than done when it comes to adapting their products, services and marketing strategies to different countries, which also have different tax structures and regulations. Retailers can start by conducting market research to understand customer preferences and regulations in each local market, analyzing trends and purchasing habits so that they can better tailor their offerings. In addition, marketing messages and communication strategies should be adapted to take cultural nuances into consideration. That includes the translation of product names, slogans and other marketing and sales content so as not to inadvertently offend or send the wrong message (a la Kentucky Fried Chicken’s debut in China in the 1980s, with its “Finger-licking’ good” catchphrase — which translated to “Eat your fingers off”).

15. Minimizing Merchandise Returns

Customers who purchase products and services change their minds all the time, and with the advent of omnichannel options, they’re returning products with greater frequency. According to the NRF, returns in 2022 accounted for $816 billion in lost sales across the U.S. retail marketplace. Several factors are contributing to increasing returns, from disjointed ordering systems that send customers the wrong products, to products damaged during shipping, to return fraud. Periods of inflation and unemployment also contribute to increased product returns.

To minimize merchandise returns, retailers must first understand why customers are returning merchandise. Retailers might even share product-related insights with manufacturers, in an effort to improve product quality. In addition, some retailers offer product samples or, like Amazon, a “try before you buy” option for eligible clothing that gives shoppers a week to decide what to keep before charging them.

Immersive technologies, like augmented reality and virtual reality, take that concept to the next level, enabling virtual try-ons and 3D product visualizations, both of which can also reduce the number of returns.

16. Dealing With Rising Inflation

Rising prices impact businesses differently, depending on the industry, but common challenges include escalating costs of raw materials, rent, utilities and employee wages, as well as a decrease in consumer spending, especially on discretionary goods. When inflation climbs, borrowing money becomes more expensive, making it harder for retailers to invest in future growth. Raising prices to cover their increased costs is one solution, but if retailers hike prices too much, customer demand could drop.

Still, retailers can take some steps to weather economic downturns. For example, by building an extensive supply chain, retailers can prevent themselves from being adversely affected by one supplier’s price swings. And retailers that double down on cultivating a loyal customer base and providing exceptional customer service may find that shoppers remain faithful, despite higher prices.

To better prepare for and manage inflation, retailers should also keep their eyes on competitors’ prices and raise their own prices, if necessary, on a gradual basis; reevaluate their product portfolio, focusing on their most popular items; borrow, if necessary, with fixed-rate loans; stock up on essential goods; and reevaluate expenses, pinpointing ways to cut costs.

How ERP Software Can Help Solve Retail Challenges

From multichannel management, supply chain optimization and inventory management to customer analysis, process automation and financial management, enterprise resource planning (ERP) software can help retailers manage a host of challenges. By integrating typically separate business systems onto one platform, an ERP provides retailers with a holistic view of their businesses, enabling them to make more informed decisions based on up-to-the-minute data. Solutions with real-time dashboards also allow retailers to closely monitor key trends and business results, so they can react quickly when market conditions shift and business and customer needs change.

Solve Retail Challenges With ERP Technology From NetSuite

NetSuite ERP is an all-in-one cloud-based business management solution that helps retailers stay competitive by automating core processes and providing real-time visibility into their operational and financial performance. NetSuite’s solution is tailored to the retail industry, offering an integrated suite of applications that provide greater control over accounting, inventory, ordering, supply chain, warehouse operations and more, and allow retailers to provide a cohesive, consistent omnichannel commerce experience, which in turn strengthens customer loyalty. NetSuite ERP also offers real-time dashboards and analytical reports that provide a detailed view of a retailer’s business activities, providing the insight a company needs to make proper adjustments to its strategies and ensure future growth and success.

The retail industry is currently confronting a wide variety of challenges, including rising inflation, the threat of security breaches and supply chain disruptions. In addition, retailers are challenged with engaging empowered consumers who expect a personalized, seamless omnichannel shopping experience and will switch brands at a moment’s notice. To overcome these challenges, retailers need to adopt customer-centric strategies designed to reach customers at every touch point and leverage technology to better track everything from the sales pipeline to inventory data. All the while, retailers must also work on retaining skilled personnel, meet or even surpass customer expectations and monitor the landscape for up and coming trends that could fuel business growth.

Retail Industry Challenges FAQs

What are the top three challenges for retail and consumer goods?

Among the many challenges faced by retailers are:

• Meeting customer expectations: With businesses embracing hybrid channels that straddle physical and digital retail, it can be challenging for companies to create a consistent brand identity, deliver a seamless shopping experience and win brand loyalty over the long term.
• Supply chain disruptions: Businesses that rely on one supplier leave themselves vulnerable to supply chain disruptions.
• Employee turnover: Attrition is top of mind for retailers, with many using technology to upskill and train employees so they can advance within the company.

What are the challenges facing the retail industry in 2023?

In 2023, it has become more difficult for businesses to maintain customer loyalty as price-conscious consumers faced with inflationary pressures are able to easily compare prices among retailers. Finding qualified talent with the right skills also continues to be problematic. Without the proper tools, the ability to monitor inventory levels, avoid supply chain disruptions, maintain data security and increase productivity can be quite difficult.

Why are retailers struggling?

Despite overall increased growth, retailers are struggling to stay competitive among a crowded marketplace of brick-and-mortar stores and online options, as well as direct-to-consumer brands, which cut out retailers as intermediaries.

What major trends are retailers facing?

Major trends retailers are facing include:

• Automation: Automation enables retailers to improve order tracking and better manage staff productivity in areas like customer service, lead generation, inventory and warehouse management, purchasing and billing.
• Artificial intelligence-enhanced personalization: Personalized emails and newsletters are on the upswing, helping to boost engagement and conversion rates. And more outfits, including grocery retailers, are using machine learning and artificial intelligence to drive personalized product recommendations. Brands are also using responsive features like quizzes to personalize offerings and segment audiences.
• Livestream shopping: Taking a page from forward-thinking markets, retailers are hosting interactive livestream shopping events on social media platforms, which reinforce personal ties with customers while bolstering conversion rates.
• Omnichannel expansion: Creative businesses are reaching customers at all touch points, integrating ecommerce and mobile commerce, while also maintaining a brick-and-mortar presence.