Retail Industry Trends to Watch in 2024

The retail industry plays a critical role in the U.S. economy by selling goods and services to consumers and employing a substantial portion of the nation’s workforce. Recent years have seen the industry navigate fluctuations such as shifting consumer behaviors, supply chain disruptions and inflationary pressures.

Looking forward, several emerging trends could impact the retail landscape in 2024, including organized retail crime (ORC), new technologies, cybersecurity exposures and ongoing supply chain challenges. As such, it’s important for retail businesses to closely monitor these sector developments this year and adjust their operations and risk management practices accordingly. By doing so, they can safeguard their financial stability, preserve their reputations, and address ethical and legal considerations pertinent to their operations.

ORC is a major concern across the retail sector. The National Retail Federation (NRF) describes ORC as a large-scale theft or fraud activity that is intended to convert illegally obtained merchandise into financial gain. It has become such an issue that it received congressional attention during a December 2023 hearing held by the House Subcommittee on Counterterrorism, Law Enforcement and Intelligence. This was due in part to the introduction of the federal Combating Organized Retail Crime Act earlier in the year. Furthermore, several states have passed laws addressing organized retail crime, highlighting its presence and effect on the industry.

Through ORC, criminals steal goods off store shelves and resell them to unsuspecting online shoppers at reduced prices. They may also attempt to return them to the store fraudulently. Some criminals may infiltrate retail companies’ supply chains and steal merchandise before it reaches store shelves to redistribute these items on the black market.

The U.S. Immigrations and Customs Enforcement (ICE) agency has noted that ORC is different from shoplifting and that ORC is not a victimless crime. It reports that these thefts are detrimental to businesses and the economy and that they pose health and societal risks to the community, as these crimes can become violent. The agency noted that ORC may be used to fund organized theft groups (OTG) that are involved in several other illegal schemes. ORC is also a component of “retail shrink” (inventory losses caused by anything other than actual sales), and the NRF estimated that retail shrink losses reached $112.1 billion in 2022.

There are several measures retail businesses can take to help mitigate ORC concerns. Initially, employers should conduct preemployment criminal background checks to help stop internal theft incidents. Within their businesses, customer service measures should be enhanced (e.g., having employees stationed throughout the store floor and encouraging them to engage with customers) in ways that simultaneously improve monitoring.

Restricted merchandise return policies should also be implemented to reduce the risk of fraudulent returns. Moreover, partnering with law enforcement is vital to improving in-store security, and leveraging technology (e.g., sensors, security systems, cameras) and installing warning signage can deter criminals from stealing items and better identify perpetrators if incidents occur. Employers should be sure to train employees to detect signs of retail theft and appropriately respond to these incidents without threatening their safety.

Employers in the retail industry continue to look for ways to leverage technological advances to benefit their operations and improve efficiencies. In particular, the growth of artificial intelligence (AI) has the potential to revolutionize the industry, and the rise of augmented reality (AR), virtual reality (VR) and the metaverse has the potential to enhance customer experiences and employee training.

AI has several uses in retail; it can process data, enhance customer service, be used in advertising and manage inventory. Its utilization is increasing; according to a recent survey from technology company Nvidia, over 60% of global retail respondents plan to boost their AI infrastructure investments in the next 18 months.

Retail employers have also been incorporating AR and VR in their operations. AR combines the physical world and the digital world through interactive technology that overlays digital sounds, graphics and images over real-world objects. It can enhance a customer’s experience by allowing them to engage with products in a personal way. For example, they may be able to try on clothing digitally before purchasing it. While AR creates a hybrid experience between the digital and physical worlds, VR is a completely immersive experience that replaces the physical world with a virtual environment. VR can be effectively used to train company employees in a digital setting. In fact, according to a survey from professional services firm PwC, VR learners were four times faster to train than classroom learners.

AI, AR and VR can be valuable tools with the advancement of the metaverse, a digital environment that allows for virtual interactions and the sharing of content in an interconnected digital realm. As this technology progresses, consumers may increasingly be able to connect and engage with products in the digital world or shop for virtual products. This type of interaction has the potential to change customer experiences and allow retailers to grow their brands outside of the physical world.

Although these technologies offer many benefits, they come with risks. For example, AI can be used to generate fake reviews or other fake content that can negatively impact brands. Retail companies may also fall victim to deepfake scams, in which AI is used to generate audio and video content that mimics senior leadership or a well-known celebrity and is used to spread negative messages about a business. Additionally, AR and VR can malfunction or contain errors, and interactions in the metaverse may create cybersafety or ethical concerns as well as give rise to compliance risks as regulations evolve to address this emerging digital space.

Considering these risks, it’s essential for retailers that leverage technology to review their digital exposures and take actions to mitigate them. Strategies may include providing comprehensive employee education and training, establishing comprehensive guidelines for ethical AI use, installing security software, consistently reviewing applicable laws and regularly testing their digital systems.

As e-commerce grows in popularity, cybersecurity has become a rising concern across industries. In the retail industry in particular, point-of-sale systems, consumer-facing websites, mobile applications and other software leveraged to conduct retail transactions generally hold a wide range of sensitive customer data (e.g., financial details and contact information), therefore making this technology attractive for cybercriminals to target. Companies also need to be aware of insider threats, in which employees, intentionally or unintentionally, release secure data.

Cybersecurity events can have significant consequences. According to a 2023 report from IBM, the global average cost of a data breach in the retail sector was $2.96 million. In addition to the financial impacts, these events can cause lasting reputational damage. Cyber incidents can erode the trust of vendors, customers and the general public, and they can negatively impact employee morale and a company’s ability to attract and retain new talent.

Retail business owners must follow evolving data privacy regulations at the federal and state levels as businesses are held more accountable for their cybersecurity failures. For example, New Jersey recently passed a consumer data privacy law in 2024, joining several other states with similar laws. More states have data privacy legislation in progress.

Amid this evolving risk landscape, retail companies that don’t adopt effective cyber incident prevention and response measures could encounter serious consequences, including lost or damaged technology and data, prolonged business disruptions, reputational erosion, stakeholder litigation and significant penalties from regulators.

To avoid these consequences, retail business owners should employ a variety of tactics. Employers should implement advanced data protection protocols (e.g., access controls, multifactor authentication and encryption), segment networks to reduce the likelihood of lateral infiltration, and keep software updated and patched. Employees must be provided with routine cybersecurity training, while organizations should establish cyber incident response teams and make documented plans for different attack scenarios.

It’s crucial for employers to further protect their businesses by partnering with vendors that value cybersecurity, consulting legal counsel to ensure compliance with applicable data privacy laws, and securing sufficient insurance coverage to protect against potential cyber losses.

The retail industry continues to grapple with supply chain challenges, which have been exacerbated in recent years. Several factors have contributed to these delays, including an increased demand for various goods and rising costs. Further complicating matters are various international incidents, such as global port congestion and geopolitical tensions, along with natural disasters and labor shortages. Collectively, these issues have contributed to bottlenecks in the supply chain, leading to slowed shipment and delivery times for some high-demand products and materials.

Supply chain disruptions can severely impact a business’s profitability, consumer prices and product availability. As a result, retailers need to prepare for and minimize these potential disruptions. One effective strategy is to implement automated supply chain technology and other digital solutions. Data analytics can also be utilized to maintain real-time visibility of businesses’ supply chains. Other steps employers can take include developing updated contingency plans, building strong relationships with multiple vendors, prioritizing domestic supply chain solutions over international ones, and staying current on inventory and stock trends. These measures can help companies remain operational in the face of potential disruptions.

Human rights issues are also a major concern with regard to retailers’ global supply chains. Retailers must ensure they are procuring their materials and products through ethical suppliers free from situations that involve forced labor, child labor or working conditions that are unsafe or violent. Retailers can help safeguard individuals who provide products for their businesses and protect their reputations by promoting supply chain transparency, developing relationships with trustworthy partners, and ensuring suppliers, manufacturers and the companies they outsource adhere to ethical practices.

Several trends will likely impact the manufacturing sector in 2024. By watching these developments, responding appropriately to them and mitigating their associated exposures, retail businesses can effectively position themselves to maintain long-term growth and operational success.

Contact Worcester County’s coastal insurance experts at Deeley Insurance Group today today for additional risk management guidance at 410.213.5600.