Retail Pulse Report: US Consumer Vibes, GenAI’s Product Search Misses, and Fitting Room Self-Checkout

Frustrated consumers won’t respond well to being told everything is great – even if that’s true. And if you think GenAI is going to kill search, try using it to search for products.

This week’s review features an update on US economic indicators – and more proof that consumers are along for the ride, but are still disappointed by their own personal prospects. GenAI and product search are not a match made in heaven – there’s still a lot of work to do before GenAI search is useful here. Loyalty programs get recast as “modern membership”, and Walmart has christened November 11 as the official kickoff to the holidays (so you only have a week left of “fall”). Let’s dive in!

Retail Economic Indicators

In the last economic news before the election, the US economy seems to be doing all the things that are required to hit a soft landing dead center. The economy grew at 2.8% in Q3. The forecast was 2.6%, and continued consumer spending resilience drove the heat that beat expectations. The job market came in softer than expected, but also many forecasters were still waiting for the impact of hurricanes Helen and Mitchell to finally hit, and it appears it did last week.

At the same time, inflation came in cooler than expected in September – at 2.1% increase year over year (versus 2.3% year over year in August). It’s still above the Fed’s target of 2.0% but also now in line with inflation numbers last seen in 2018. The bad news hidden inside the good is that core prices (excluding the more volatile energy prices, for example) were still running at 2.7% year over year, and the cumulative impact means that prices today are 20% higher than they were four years ago.

If you’re wondering why consumers are still down in the dumps about the economy, this is why. You can say that wages kept up with and often beat inflation, so while prices are climbing, consumers are clearly still able to keep up. But that’s not how consumers are doing the math. If you got raises over the last four years, that shouldn’t count as “keeping up” – it should be getting you ahead. And it’s not. And every time you buy something you haven’t bought in a while, you get a nasty reminder that what you remember as “the price” is now woefully inadequate.

However, it does appear that the positive signs in the economy are finally sinking into consumer consciousness. The Conference Board’s Consumer Confidence Index came in at 108.7 in October, up from 99.2 in September. This is the biggest monthly increase since March 2021. The Conference Board pointed out that all five of their indicators improved, and the Expectations index increased 6.3 points to 89.1 – this is the one they have pointed to as the primary indicator for the possibility of a recession, where below 80 indicates a recession is likely.

Finally, the German trade association HDE reported that Halloween spending in the country will reach EU 540 million vs. EU 480 million last year. Just under 15% of Germans planned to spend on Halloween this year compared to 13.5% last year, indicating growing overall participation. To keep that in perspective though, NRF predicted that 72% of US consumers planned to celebrate Halloween, with an average spend of $104 per consumer and a total spend o $11.6billion.

Retail Tech & Research Data

SpringWise highlighted a startup that is trying to reduce waste in returns by creating opportunities for customers to ship items to each other, rather than returning them to the retailer. Frate, a Canadian startup, as received a seed round so far. It works when a customer indicates they have a return. AI will evaluate the state of the item to be returned. If it’s good, it offer a discount to the customer to hold on to it for short period of time, and then relist the item on the retailer’s website. If it sells in that time, the returning consumer will be prompted to ship it directly to the new buyer. If the item is not resellable at full price, then it can be diverted to resale or disposal.

I like the idea, but there are so many ways this could go wrong – so many more ways than just returning it to the retailer. Yeah, it has a slight odds of reducing the carbon footprint and waste of a return, but seems like it’s taking on a lot of risk and potential for customer dissatisfaction to get there. We shall see!

And while this isn’t research per se, David Yates, a founding partner of Uncommon Experience Studio, published a “manifesto for modern membership”, which started out intriguing but didn’t remain that way. The main opening thought that caught my eye: "The world of loyalty has become too transactional – relying on costly ongoing bribes to drive customer behaviour which should be a result of the relationship they have with your brand." Yes. 100%. Totally agree. In fact, I would posit it’s more accurate to say that loyalty is valuable, but most loyalty programs are questionable at best.

Where I immediately diverge is in the solution to the problem. Let’s say that loyalty programs should shift to “modern membership” – this is where the consumer pays up front and has skin in the game, and now it’s on the retailer to deliver enough value that the consumer will continue to remain a member. More and more companies are doing this, it’s really not controversial. But while yes I agree that retailers need to focus beyond promos and points, the example left me wanting. So Waitrose will let you get a free coffee and a newspaper instead of points. It’s still a value exchange. How is that truly different than letting me select free shipping as my bonus option?

And prompting frontline workers to congratulate consumers for reaching a new tier or some kind of status achievement – I have been on the receiving end of that and sure, OK, great. But context is everything. It’s not that helpful for my airline to congratulate me on my newfound status when I’m sitting in a middle seat in the back of the plane. Thanks for nothing. And how awkward for the frontline worker, whether a cashier or a flight attendant.

Here's what I’ve learned about loyalty over the years. Delight drives loyalty. When you can consistently pleasantly surprise your customers with benefits, then they give you their loyalty. And that loyalty can be extremely valuable. The thing is, there are several elements of that definition that are extremely difficult to sustain. Consistently and surprise are in direct opposition. And consumers’ expectations get set higher and higher each time, so delivering the same benefit over and over – even if it is pleasant and surprising – gets harder and harder. This is why loyalty programs devolve into a promos-for-data scheme. It’s the most long-term sustainable play that a retailer can offer in a loyalty program. Anything else requires the continued application of creativity and inspiration in order to really create something differentiating.

AI & Retail

The Interline published a longer article last week, focused in on what GenAI means for product search, which was really interesting. I recommend reading the whole thing. They compared how product and brand search results are presented when GenAI is summarizing search results, and pointed out that with approaches like ChatGPT, there are no link backs directly to the products, so a lot of utility is lost. Perplexity includes reference links, but those more often pointed back to review sites, also leaving out direct links to product purchase pages. They wander into TikTok Shop territory an also a startup called Aesthetic, which is being billed as the “Shazam of clothing” (by the way, you’ll never find it directly by Google search, which is probably ironic).

I think there’s also something to be said for dead links – a challenge I find a lot on Pinterest too, where it looks like it might be a product listing but it's out of stock or no longer available. I want this kind of thing to work – the “oh I like this $3,000 product but I don’t want to pay that much, how close can I get?” type of search. I also want, “I need a new pair of running shoes, based on my history of purchases, give me some options with sizes”. Lots of people are talking now about AI agents, where this kind of search would theoretically be possible. But organizing the data required to make either of these options possible, and give an actionable result, still feels pretty far away.

Retail Winners and Losers

Sometimes the stories write themselves. Three articles this week on livestreaming: “TikTok Shop pushes livestreams to drive holiday shopping” (this story is actually about how TikTok is trying to convince brands and influencers to put up several 2-hour livestreaming events during the holidays). Followed by, “Big brands are wary of TikTok Shop’s livestreaming bet”, mostly because they fear two straight hours of unfiltered, un-sanitized content by rookie livestreaming personalities, whether their own or paid. Followed by, “Macy’s and Nordstrom launch livestreaming”, which probably needs to come with versioning at this point, as both companies have made at least one attempt at this already. But also an unsurprising outcome: if you don’t want to do it the way a platform wants you to do it, you try to do it yourself.

Probably the best quote out of all three articles, from the Modern Retail story: "Given that only 14% of adults in the U.S. have bought something from live shopping, according to eMarketer, there’s often a high probability that a livestream event won’t pay off."

A Forrester report predicts that Shein in Temu will both see a “plummet” in growth rates in 2025. I mean, there is the law of really large numbers, which says sustaining high growth rates over time becomes increasingly difficult. That has to be true for both Shein and Temu. But Forrester also believes growing dissatisfaction from customers will turn into defections that will ultimately put a dent in both companies’ results. Putting together the news about Shein and Temu over the last year, between quality and labor concerns, air freight wars, moves to close international shipping loopholes, and challenges listing IPO’s in the US and the UK, it’s not hard to predict that a lot of shine has come off of both.

If you’re grousing about the immediate swap out of Halloween for Christmas, just wait. Walmart has announced its plans leading up to Black Friday, and it has three waves beginning November 11. Each wave involves exclusive and early deals for Walmart+ subscribers that then open up to the general public. The plans include another shoppertainment series, this one a 10-chapter series called “Deals of Desire” and promising an interesting array of celebrities. The company also plans to expand a beta test of its GenAI shopping assistant to its holiday site, to drive predictive content for each visitor. 

Store Innovations

Last story of the week: Marks & Spencer is adding self checkout to its fitting rooms. They’ve been running a test at the company’s Fosse Park, Leicester store, but now look to expand to “more than 100 stores by early 2028”. That seems like an incredibly slow rollout, when you’re talking one SCO per changing area – not per room. But it’s probably a smart move to add one per section and then go back to add more if consumers really like them. The company also notes that staff members will host the changing areas to ensure that customers pay for their purchases when they use self checkout. That speaks to a potential weak point in the process, however fitting rooms should be staffed anyway (theoretically), so this shouldn’t be an added burden. I am sure that having convenient checkout prevents some second thoughts on the way to a fully staffed register somewhere in the store.

What Did We Learn This Week?

Between last week and this week, I learned that a very likely reason that consumers are still negative about the economy is not due to the economy not being good, but due to the perception gap of where consumers are versus where they think they ought to be. The point for retailers and brands is to make sure they acknowledge this perceived gap and play to it however they can. I’ve seen Pepsi try to spin “an end to” or “anti-“ shrinkflation. That’s not going to be enough. “Inflation relief plan” or just plain price cuts will resonate much more. Even with growing optimism among consumers, if you ignore their frustration, they’ll just take it out on you.

We also learned (again) that loyalty is hard, and recasting it as “modern membership” doesn’t change the fact that not only is it hard, but there are systemic things that keep it hard forever. Only the most determined, flexible, and creative retailers and brands can make a sustainable loyalty program that actually drives long-term loyalty.

I also got a jolt in thinking about what GenAI might or might not bring to product search. When I think about why I didn’t consider this angle before now, I think it’s just because I think almost exclusively of Amazon when it comes to product search. That’s always bad for everyone (except Amazon), but it goes back to a critical point about search: context is everything. What I want to know when searching for “jeans” when I’m at home on my laptop is completely different than when searching in a mall on my phone. And GenAI isn’t much better at that kind of context than a regular old search bar.

If Walmart’s bet is correct, the holiday season will officially kick off one week from today. Make sure you’re subscribed to get the weekly updates as we go!