Retail Business Model – 2023 Outlook

‘Retail is detail’ they say. Nowadays, the level of detail for retail businesses is staggering given the mix between physical and digital channels.

Omnichannel (bricks & mortar, eCommerce, etc. ) is the buzzword de jour for retailers as we head into 2023. It’s certainly not an easy time to be leveraged to the retail business model, nor has it been for the last several years.

The retail apocalypse, the rise of DTC in the pandemic years, and now rapid inflation. Below we dive into some of the other business model trends affecting retailers.

Retail Business Model

shopping bags - retail business model

Retail Stocks as a Proxy

If we look at some publicly-traded retail stocks as a proxy, we can get a feel for how retail fared in 2022 as a proxy of the overall economy. The following are their respective performances over the last year. For context, the Dow Jones was down 8.9%, while the Nasdaq was down 33.7% in 2022. The Consumer Discretionary Index was down 36%.

  • Walmart – Ticker: WMT – Down 1% – $385B Market Cap
  • LVMH – Ticker: LVMH (France) – Down 5% – $350B Market Cap
  • Home Depot – Ticker: HD – Down 23% – $320B Market Cap
  • Costco – Ticker: COST – Down 18% – $200B Market Cap
  • H&M – Ticker: HM-B (Sweden) – Down 33% – $180B Market Cap
  • Lowes – Ticker: LOW – Down 22% – $120B Market Cap
  • Target – Ticker: TGT – Down 34% – $70B Market Cap
  • Gap – Ticker: GPS – Down 37% – $4.3B Market Cap
  • Kohls – Ticker: KSS – Down 50% – $2.7B Market Cap
  • Nordstrom – Ticker: JWN – Down 30% – $2.5B Market Cap

eCommerce Stocks

  • Amazon – Ticker: AMZN – Down 49% – $859B Market Cap
  • Mercado Libre – Ticker: MELI – Down 25% – $43B Market Cap
  • eBay – Ticker: EBAY – Down 35% – $23B Market Cap
  • Etsy – Ticker: ETSY – Down 37% – $15B Market Cap
  • Chewy – Ticker: CHEWY – Down 30% – $15B Market Cap
  • Zalando – Ticker: ZAL – Down 36% – $10B Market Cap
  • Farfetch – Ticker: FTCH – Down 86% – $1.9B Market Cap

Brick & Mortar vs. Digital Only

Clearly, from looking at the discrepancy in different stock-price performances in 2022 between various companies, all is not equal in the retail category vs. the eCommerce category. And some verticals perform much better than others as a proxy of the overall economy.

retail outlet mall in Poland

The companies with a bricks-and-mortar presence (+ online eCommerce channels) performed much better as a whole than those who are pureplay eCommerce.

This is exactly the opposite of what happened in 2021. ‘Tech Winter’ is the overall theme to describe how high-growth technology companies have fallen out of favor, while more traditional companies fared much better.

Why is that the case?

Having the real-estate to offer in-store, retail buying has been a significant advantage for retail brands since the economy started recovering in the post-pandemic years.

In 2022, physical store openings in the US outpaced closures for the first time in over three years.


Foot traffic to major malls and retail centers began in 2021 and for the most part continued into 2022. Foot traffic in the U.S. is still about 10 – 20% below pre-pandemic levels, yet sales per square foot increased by 13% in 2021, meaning some retailers are getting closer to where they were heading into 2023.

Real Estate and the Retail Business Model

If we look at the Business Model Canvas for eCommerce-DTC below, we can see that it is the same in many ways to the Retail Business Model, but with one major difference – real estate.

eCommerce-DTC Business Model Canvas

eCommerce-DTC business model canvas
eCommerce-DTC Business Model Canvas

That one difference creates a ripple effect across the business model, which changes virtually every other component of the Canvas:

  • Customers principally visit physical stores, deal with in-person sales reps
  • Customers can try things on, handle good physically – returns are lower
  • Buying behaviors are different – repeat buying tends to be more frequent

With commercial vacancies sitting above 2019 levels in the U.S., there is lots of space to lease and rent rates are much lower in most Western countries. In the UK, leases for high-street stores are down 20 -30% from 2019 in many locales.

The mechanics of the market have shifted so dramatically since the pandemic years that many major landlords have become Partners of retail brands, offering lower costs upfront for new leases and performance-based increases. This aligns the incentives to ensure the physical channel performs as market conditions oscillate.

There is always going to be discrepancy in the retail model between those brands who own their own real-estate and those who lease. Furthermore, many major retailers operate a hybrid model between physical retail and eCommerce DTC.

In any respect, the Customer Relationship and Channels are based around a physical touch in retail, a difference that shifts the entire business model relative to eCommerce-only.

#Fashion Retail

In line with the analysis above, we can see how DTC Apparel and Fashion brands have under-performed the broad index of ‘Consumer Discretionary Goods’ by a significant margin.

MSCI World Consumer Discretionary vs. Avg. DTC Apparel and Fashion Brands

Customer Acquisition Costs (CAC) are a big part of the problem for online brands as discussed in the eCommerce-DTC Business Model Canvas. This is partially to do with the Apple iOS privacy update, which affected Facebook, Google, and others negatively. It also is a result of declining Consumer Confidence – as confidence goes down, CAC goes up, and vice-versa.

eCommerce – CAC Costs

Thus we see a big push in fashion-apparel back into either wholesale, 3rd party marketplaces like Farfetch, or in some cases well-capitalized brands are opening their own retail stores.

Mounting digital marketing costs and e-commerce readjustments have put the viability of pure direct-to-consumer business models into question. To grow, most brands will need to diversify their channel mix with a balance of wholesale, third-party marketplaces and DTC.


The hybridization between physical and digital will progress in 2023, with most of the top fashion players offering a mix between in-store and online offerings. Whether brands focus more on wholesale (higher volume, lower margin) or DTC (higher margin, higher risk) will likely depend on who their Customer Segments are and where they sell the majority of their goods.

The major focus will be to continue to develop relationships with Repeat Customers and avoid losses at the margin from expensive or misguided Customer Acquisition strategies.

#Grocery Retail

Grocery straddles retail in many ways, especially with many grocers expanding their product offerings around wellness (natural supplements), personal care (deodorants, etc.) and other types of discretionary items.

Grocery Store

Certain DTC-only grocery brands like Thrive Market have been successful (more than 1 Million Members across the U.S.) with their Buyer’s Club model. They have no physical stores and can compete on margins in the organics sector with retail grocers like Whole Foods because of their unique business model.

Others in the eGrocery space have not been so successful. The flame out in qCommerce (quick commerce) for grocery mirrors the WebVan spectacle more than 20 years prior.

Between 2020 and 2021, there was an explosion of new startups — Fridge No More, Buyk, Jokr and Gorillas, to name a few — promising grocery delivery in less than 30 or even 15 minutes, with no order minimums and no delivery fees. Fueled by record levels of venture capital funding … just as quickly as some of these 15-minute delivery startups burst onto the scene, they flamed out.

Modern Retail

The sudden rise and fall shows the immaturity of the qCommerce model relative to grocery. This is a cross-category trend around delivery, yet grocery has taken it on the chin more than any other category because the margins are so thin.

Meal Kits move to Wholesale Channel

We also see the manifestation of this through meal-kit delivery companies like Freshly, who recently shuttered their DTC operations in favor of wholesale channels via grocery stores.

“While Freshly’s direct-to-consumer business will be regrettably impacted as a result of this shift, we hope to soon resume serving our customers fresh ready-meal solutions, just in the retail channel.”

Just Food

The physical space that can sometimes seem so costly and burdensome in certain market conditions has returned to be a catalyst for stability not just for retailers, but for many different types of DTC-centric brands who are trying to expand their presence in the retail channel.

This is why Partnerships are such an essential component of the Business Model Canvas; going forward, partnership strategies will be crucial to many brands survival.


Consistent Customer Traffic

YoY Change - retail vs. luxury

For those Department Stores who sell multiple categories of goods, including garments, apparel, kitchenware, beauty products, and more, the outlook doesn’t look so rosy.

“[W]e believe Department Stores face many challenges ahead,” Sole said. “We model very weak earnings outlooks for Nordstrom, Kohl’s and Macy’s and believe these challenges are not fully appreciated by the market.”


The term ‘consumer discretionary’ refers to those products that are “discretionary;” in other words not essential for day-to-day living. As the economy turns down, consumers tighten their spending and Department Stores bare the brunt if they aren’t wise with their product mix.

These same set of factors gave way to the five-and-dime Departments Stores of the 1900s such as Woolworths. Consumers in that era were budget-conscious to the max, and Woolworth’s capitalized on those trends before rising to the top of retail heap decades later, and raising the price ceiling as the years went on.

By 1929 Woolworth had about 2,250 outlets, and its stores continued to proliferate in the United States and Britain. The company raised its price ceiling to 20 cents in 1932 and abolished price limits altogether in 1935. 

Woolworths Five and Dime - NYC
Woolworths – Retail Innovation and History

In 2022, we saw the top performers at both the top (LVMH) and bottom (Walmart) of the spectrum in terms of price – luxury to budget. Both sides of the market will likely continue to perform well in 2023 as these general trends continue. The problem will be for those brands who get caught in the middle.

U.S. consumers’ willingness to spend on softgoods like apparel, footwear and accessories in December shrank 15.7% from 2019, the biggest decline since the pandemic began


Consumption rates around certain products like apparel are tightening, with a lot of demand moving towards second-hand or vintage goods via resale channels. Thus Department Stores will likely be forced to shutter more locations in 2023 and shift more sales into the eCommerce channel.

The Scrappiest Brands Will Survive and Prosper

Scrappy may end up being the word du an (of the year) in retail when all is said and done.

When the broad market is forced to tighten their respective belts for the survival of their families, it is tough. When entire generational brands face bankruptcy and extinction, things shift to another level.

That’s why the Outlook will shift from being pragmatic about costs and strategic initiatives to being downright scrappy in order to survive. The ‘scrappy brand’ playbook includes:

  • great customer service
  • high-quality products and curation
  • tight cost + inventory management
  • sociable brand qualities
  • innovation in and around the store

There is no way that ‘AI’ (Artificial Intelligence) is going to get major brands through a recessionary environment alone. Technology can help with personalization and tailored product offerings where a customer already shops, but it can’t make someone spend when they don’t have any discretionary income.

In recessionary type environments, many discretionary goods get cut out from budgets but not all. Luxury goods still tend to perform well, for example. As the economy starts to recover – at some point in the future – those ‘discretionary taps’ will turn back on and consumers will shop where they are loyal.

The summary Outlook is somewhat similar to the discussion around eCommerce-DTC – focus on creating loyal, repeat customers. The mechanics of driving online vs. in-store sales are obviously completely different, but in both cases, brands want their customers to feel a sense of satisfaction in the purchase.

Many retailers have seen certain elements of the market shift in their favor around wholesale vs. eCommerce channels. Who knows how long that shift will last. In the interim, a partnership type strategy will help build new bridges that can be expanded when the economy roars back.

Being scrappy and building bridges should create a more sustainable retail business model going into 2023 and beyond.

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