Which retailers won (or lost) in 2022?

The trend: 2022 has been a wild ride for many retailers. While many expressed optimism in the beginning of the year as pandemic restrictions eased and consumers showed their willingness to spend, the tide turned rapidly as war in Ukraine and rampant inflation forced retailers to recalibrate their expectations.

Retail winners: Consumer behavior this year has been characterized by contradictions. For example, 95% of shoppers say they will consider or purchase private brands this holiday season, per a survey by Daymon, but many consumers continue to shell out for premium products as an “affordable luxury.” Our winners this year reflect this apparent paradox.

Discount stores and club retailers: Unsurprisingly, as gas and grocery prices rose, more shoppers began turning to discount and club retailers for some relief at the pump and at the cash register.

• Foot traffic to discount grocers like Aldi and Grocery Outlet rose in Q3, in contrast to the wider grocery category’s drop in visits, per Placer.ai.
• Sam’s Club, Costco, and BJ’s Wholesale Club all reported strong—and in some cases, record—membership growth throughout the year as shoppers took advantage of lower gas prices and bulk-buying discounts.
• Despite not being strictly a discount retailer, Walmart’s ability to keep grocery prices low helped it win market share and attract more affluent shoppers.

Luxury brands: Luxury brands have had a stellar year as consumers displayed virtually insatiable demand for designer goods.

• LVMH Moët Hennessy Louis Vuitton’s revenues rose 28% year-over-year (YoY) for the first nine months of 2022. A host of other luxury companies including Kering, Richemont, and Hermès also saw strong growth throughout the year.
• Luxury beauty companies have seen an uptick in sales as the lipstick effect drives more consumers to indulge in small luxuries. For example, Coty CEO Sue Nabi said on the company’s Q3 earnings call that more shoppers are trading up to premium fragrances.

CPG brands: Even with more shoppers trading down to private labels, many CPG companies reported growth this year thanks to one key tactic: raising prices.

• Higher prices helped drive up revenues for PepsiCo, Unilever, and Procter & Gamble even as sales volume declined.
• A handful of CPGs—including Mondelēz, Hostess, and Hershey’s—have managed to raise prices and sales volumes as they position their products as “affordable treats” for families to indulge in.

Retail losers: Unsurprisingly, the retailers that struggled the most this year largely operate in discretionary categories like apparel, home furnishings, and consumer electronics.

• Best Buy dealt with soft demand all year after consumers stocked up on electronics during lockdowns and inflation dampened demand for big-ticket items.
• Target grappled with elevated inventory levels all year as shoppers devoted more of their budgets to necessities like groceries and experiences like travel, and less to the discretionary categories that the retailer generates most of its revenues from.
• Kohl’s sales fell as the retailer’s lack of brand identity hurt its ability to attract shoppers, and inflation causes its core consumer base to purchase fewer items and trade down to cheaper brands.
• Gap, Inc., like plenty of other apparel retailers, had to severely mark down inventory to get it off shelves, which ate into margins. But unlike other retailers, the company had to eat $53 million in charges in Q3 related to its failed Yeezy collaboration, and is struggling to revitalize sales for its Old Navy, Gap, and Athleta brands.

The big takeaway: While consumer spending has remained relatively strong despite inflation, it’s clear that shoppers are becoming more considered when it comes to what, where, and when they buy. Value has become one of the most important deciding factors for the majority of consumers, although there are significant opportunities for retailers to take advantage of the lipstick effect to drive growth.

This article originally appeared in Insider Intelligence's Retail & Ecommerce Briefing—a daily recap of top stories reshaping the retail industry. Subscribe to have more hard-hitting takeaways delivered to your inbox daily.

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