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Recession, Inflation and AI Make 2023 a Tricky Year to Predict

Forecasting with any real confidence just what sort of year 2023 will be in retail is nearly impossible to do with any sense of confidence for one glaring reason—first you have to predict the length and severity of the recession many believe is coming.

Top economic indicators and experts are all but certain a contraction is due in the first half of 2023, but with the Fed raising interest rates, unemployment remaining stubbornly low and many in the consuming public hungry to spend even in the face of soaring inflation, predicting the pain 2023 will send might be a fool’s errand.

But Jason Murray, a former Amazon VP instrumental in the development of Prime, and since 2019 the CEO of his own logistics company called Shipium, is not shy in the least about offering a glimpse into his crystal ball. He’s feels quite confident the U.S. will weather a recession that’s shallow in depth and mid-range in duration.

Jason Murray, Shipium CEO

With that as his bedrock—and caveat should he wind up completely wrong— Murray sees 2023 as the year retail puts Covid-19 completely in the rearview mirror.

“2023 will be as though the pandemic never happened,” Murray said. “During the pandemic, everyone was in excess selling mode as far as e-commerce. Shippers couldn’t keep up; retailers didn’t have enough inventory and everyone overbought… We’ll have a return to rigor; a more normal year for revenue growth and cost structure in a more sensible way.”

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Sucharita Kodali, VP principal analyst at Forrester, said 2022 was unusual in that inflation being at a 40-year high didn’t particularly affect customer spending, but something may have to give in 2023.

“It’s likely people are just paying more and that’s part of the reason why inflation is still stubbornly high—companies realize nobody has a choice but to pay more,” Kodali said. “There’s a lot of hemming and hawing about from everyday low-price leaders, and people complain—they’re very aware of what they pay for milk and eggs but, at the end of the day, people seem to be paying.”

Kodali expects 2023 to be another strong year of growth for online retail, while brick-and-mortar, after enjoying a nice post-pandemic bounceback in 2021 and 2022, will be flat, at best.

Sucharita Kodali

“Eating out is coming back and a lot of the essential goods continue to do fine. Grocery continues to see growth rates we haven’t seen in a long time; it even exceeds inflation,” she said. “It sounds like online shopping should rebound and have a lot of growth, expanding on where it was at in 2019, but I think for a lot of traditional store merchants, it’s going to be flat-to-down a little bit. They had a lot of growth in 2022, but it’s hard to see that for them in 2023.”

The foot traffic analytics firm Placer.ai projects a rosier 2023 for certain brick-and-mortar models.

The company’s top trend for 2023 is the rise of retail media networks, which capitalize on high foot traffic in major stores and use that to sell advertising to others.

“Cross-visitation between a grocer and local fitness chains could be a far better indicator of the performance of protein bar promotions than standard demographic analyses,” Placer.ai predicted. “Even more, retail media networks enable advertisers to think about physical store visits and their unique impressions through a similar lens as that used to think of standard online or television placements.”

Placer.ai also sees a bright 2023 for some shopping malls after they became suddenly sought-after by many retailers in 2022.

“This is happening at the same time as many of these malls are looking to decrease their focus on traditional tenants and widen their focus to non-traditional tenants. The result is greater competition for limited spaces,” Placer.ai said. “So where will the tenants go? While there is a range of options, one area that could see an immediate boost is second-tier malls. And if they embrace the shift and focus on differentiation and better audience targeting, the wider bump that top-tier malls have seen could drive a trickle-down process of success to others below.”

The year ahead is expected by many to be the year artificial intelligence makes a tangible advancement into people’s daily lives.

One of Murray’s three predictions is that 2023 will “be the year Artificial Intelligence actually impacts e-commerce from the inside-out.”

That means the curated shopping experience online marketplaces present and the logistics that companies like his foster to completion will be experienced in a way noticed and appreciated by customers.

“I’m very bullish in general about anything that plays off the Internet’s ability to foster the long tail,” he said. “Amazon was not necessarily the best website, but selection was always a huge factor in our decisions process. The main driver in e-commerce is access to a broader swath, anything that pushes people toward, ‘I can find this niche, or a space,’ and that really applies to fashion and is uniquely part of e-commerce… I think anything that really accesses a smaller group of people through influencers or social media is an advantage. There’s definitely a strain on companies more dependent on people coming into stores… I can’t stand up 20 stores around us to support some of our areas, but I can certainly stand up an e-commerce shop.”

Kodali, on the other hand, is skeptical of prophecies of AI dominance.

“There’s a lot of hype around what AI is and what it can do. But what are the pain points you’re trying to solve with it?” Kodali said. “The pain points you’re trying to solve in retail are not solved by chatbots. The pain points are about getting products delivered faster and putting them on shelves nice and neat and clean and there’s no robots who do that yet. What is AI doing? Nobody buys through a chatbot. Nobody buys with assisted selling except maybe for a car, but that’s only because you have to.”

Much has been made of the sudden rise of ChatGPT, which some feel will soon supplant Google as the world’s premiere search engine, not to mention its ramifications on everything from education to media and art.

On this point, too, Kodali is dubious of the new-kid-on-the-block chatbot that research lab OpenAI released in November and is reportedly valued at $29 billion.

“ChatGPT, to me, is like the 2023 version of NFTs and the metaverse; just the thing that everyone wants to talk about. But it makes no sense; there’s no logic to it,” she said. “The best use case for a chatbot was introduced to me 20 years ago when I was a Forrester analyst and they used the chatbot to go find sex offenders. For law enforcement, it’s still a great use case… but the solution is not AI.”

Kodali doesn’t just believe AI is overrated, she thinks it could wind up being dangerous, too.

“I didn’t anticipate that people would get so excited about a chatbot; that truly seems to me like grasping for straws, but it’s not only a chatbot, it’s a chatbot that doesn’t have to show its work,” she said. “Have we not learned anything from Google algorithms or Apple that it’s terrible to have a black box?”

So if AI isn’t the game-changing factor for retail in 2023, then what is?

“Fusion, that could be a big deal; even computational biology, even a carbon-catcher, but nothing really in retail,” Kodali said. “Maybe the game-changer in retail will be government regulation. There’s a lot of ESG regulations, especially in Europe to push this forward, more New York state legislature fashion impact laws, things like that. We’ll finally see if somebody steps up and adopts it.”

As for his third and final prediction, Murray says, “Much of the tech world will be surprised to find out who, from retail, owns their budget.”

“The diaspora leaving the Amazons of the world shows the amount of influence e-commerce has. A marketer for e-commerce has more influence on budget than a traditional ops leader did in the past,” Murray said. “My working theory is that when things get a little tighter, you have to find ways to differentiate yourself. Obviously, you look at the landscape of Amazon and [how it differentiates itself with] speed of delivery, clearly nobody’s there for the website. It’s not a great place to shop, but people like to get their stuff fast.”

In the delivery of goods, the waters in which his company Shipium swims by trying to “optimize all the elements of the e-commerce chain and compete with the Amazons of the world,” Murray sees shippers regaining a foothold in the chain after nearly three years of reacting out of desperation.

“Going back to 2021, it was all about excess. Basically, people wanted to ship more than shipping networks could support and that led to the rise of regional carriers. 2022 was largely a shakeout of that,” Murray said. “Power will go back to the shipper in the sense that they have plenty of capacity to re-ship. Everything will snap back to more of a normal trend on e-commerce. Despite fuel prices rising, there’s enough competition in the outbound networks, so shipping should be relatively stable and cost-efficient.”

Though highly doubtful ChatGPT making a move against Google for domination in search engines, Kodali is opening the possibility for other players to take a run at Amazon, the No. 1 online retailer in America.

“Amazon has been a little softer in recent quarters, but I think part of it could be competitive, that people have gotten used to seeing other brands and retailers. Also, the company is not being as aggressive with shipping or pricing,” she said. “Right now, Amazon has the lion’s share of retail media spend around the world. That’s likely to go down over time but their retail numbers continue to be quite healthy and their growth rate is pretty strong. I don’t think we’re at the point yet where Amazon has reached maturity,  but at some point you hit the law of large numbers. They’ve defied that reality for many years, but it’s got to hit at some point and maybe 2023 is that year.”

Murray also believes 2023 could be the year that the social media influencer begins to ebb in value to brands and retailers.

“To some degree, that’s already happened,” Murray said. “If you look at the numbers you see someone being replaced by someone else with everyone looking for the one influencer to rule them all, but it’s probably not that. It’s about how you deal with all these people in different groups; it’s all different groups, different parts of the pie.”

Murray sees TikTok remaining the social media platform of choice for influencers, but that status could be jeopardized by Congress threatening legislation to ban or limit the Chinese company.

“Everyone gets tired of advertising, so you kind of have to move on to the next format—whatever that is,” he said. “TikTok is making a big splash, but it’s moved from Facebook to Instagram to Twitter to TikTok and I think it moves on to something else at the end of the day. That theme is the most powerful thing about the Internet—it continues to evolve.”

Asked to define 2022 in one word, Kodali chose “recovery,” and for 2023, “neutral.”