Technology investments will support retailer profitability in 2025
As retailers prepare for a challenging 2025, technology will play a key role in offsetting the impact of reduced consumer demand on their businesses. Certainly, the retail industry as a whole will continue to grow. Globally, total retail sales in 2025 are expected to be $24.9 trillion. Of that, online retail sales in particular will account for nearly two-thirds of that, with $5.3 trillion (about one-fifth). From China and the United States.
As retail growth returns to pre-pandemic levels, companies across all sectors will face pressure to boost revenue and profits. Factors such as rising wages, declining purchasing power, and increased competition from Chinese retailers like Temu are forcing retailers around the world to invest in and explore innovative technology solutions to retain and expand their customer base. are forced to do so.
Advances in technology and economic realities will combine to shape the retail landscape in 2025. Here are some of our predictions for the retail industry next year.
- One in five retailers in the US and EMEA plan to launch generative AI applications for their customers. According to the Forrester Priorities Study (2024), 15% of retail and wholesale companies already have multiple genAIs deployed within their organization. These AI-powered tools will improve both customer outcomes and business efficiency, especially in highly competitive sectors. It is expected that retailers will leverage genAI to power product searches, personalized recommendations, and improve category navigation. Smart retailers can list potential genAI experiments to support better site search and navigation, or explain recommendations and other content to present to customers that may seem arbitrary to shoppers. Start with what helps.
- A small number of U.S. retailers plan to implement biometric solutions to curb internal theft. As concerns about employee theft increase, retailers that handle high-value or easily stolen items (such as health and beauty products) are turning to biometric systems to ensure employee-only areas and protect valuable inventory. You will be investing. Which companies are most likely to invest? Retailers with perceived security issues and easy-to-theft, expensive, or high-demand assortments (perhaps drugstores or the consumer electronics sector) ). These retailers will evaluate and then make a significant investment to eventually begin using biometrics internally.
- U.S. grocery store operating margins will fall by more than 150 basis points. Grocers will struggle to remain profitable in the face of rising supplier costs, weak consumer confidence and a weak job market. There will be significant pressure on U.S. grocery store revenue growth. U.S. dine-in inflation has ranged from 1.0% to 1.2% since January 2024. To maintain market share, grocery stores will increase promotional efforts and adjust product mix to lower-margin essentials. To stabilize profits, the company needs to introduce cost-cutting measures and explore new sources of revenue. For grocers, this means analyzing and testing the revenue and profit growth potential of expanding private label shelf space, product mix, and retail media assortments. Brands need to invest in retail media to offset declining shelf share.
To succeed in this challenging environment, retailers must be willing to invest and experiment with new technologies and strategies. Some initiatives succeed, while others fail. The key, then, is to foster a culture of innovation and adaptability.
download Our free forecast guide covers more of the key forecasts for 2025. To get additional free resources, including webinars, 2025 Prediction Hub.
This post was written and first published by Sucharita Kodali, Vice President, Principal Analyst. here.
