From a distance, it looks like the retail industry can’t catch a break these days.
First, the COVID-19 pandemic caused global supply chain challenges the likes of which the industry hadn’t seen in decades, arguably ever.
Then, soaring inflation pressured consumers, reorienting their spending and creating a backlash against retailers and consumer brands that didn’t, or couldn’t, react fast enough.
Now, the industry must contend with the rise of AI-enabled security threats, growing geopolitical tensions, rising trade barriers, and an increasingly uncertain economic outlook in the United States and other key economies.
Yet it’s not all gloom and doom. Experts like veteran retail tech investor Steve Streit, who has made impactful investments in leading-edge commerce startups like Shipt during a decades-long career in the financial industry, see plenty of opportunity in the sector for established businesses and startups alike, provided they’re willing to take some risks.
Here’s what they advise retail enterprises to watch in 2025.
- Safeguarding Customer Privacy in an Increasingly Complex Threat Environment
The retail industry faces a growing set of increasingly sophisticated cyber threats. According to Fortinet, the most common by far remains credential phishing, at 30.4% of the total, but malware (21.7%) and ransomware (13%) are prevalent as well.
Advances in “black hat” AI have increased the sheer number and effectiveness of attempts to breach retail and vendor systems, leaving information security professionals with a seemingly insurmountable task.
“Retailers can no longer merely pay lip service to the idea of digital security,” says Streit. “They must invest in solutions to keep pace with emerging threats, even if that means increasing their security spend relative to historical averages or taking seemingly risky steps like bringing digital security functions in-house.”
- Retaining Employees (Especially Frontline) in a Still-Tight Labor Market
Despite signs of economic deterioration in the United States, the market for lower-wage labor remains tight for the time being. It’s crucial for retail businesses and suppliers to retain high performers in this environment, especially in roles that can’t easily be combined or automated — and even if it requires new thinking on compensation and staffing.
- Creating Standout Shopping Experiences for Brick-and-Mortar Visitors
The death of brick-and-mortar retail may be exaggerated, but it’s clear that e-commerce has permanently changed the game for in-person sales. Technological innovation, including leading-edge AI solutions, are critical to maintaining market share and driving repeat business in this environment.
“We face digitally savvy shoppers with constantly changing preferences who expect shopping experiences that are tailored, instant, and effortless,” says Amanda Spencer, Global Industry Marketing Lead of Retail and Fashion at SAP. “AI is the ultimate tool for delivering on these expectations, with its ability to intuitively understand customer desires and craft personalized services.”
- Competing (Or Working) With Retail Giants’ Fast, Free Shipping Options
Online retailers don’t need to be told that free shipping is no longer a “nice to have.” It’s vital to a healthy e-commerce business. According to SellersCommerce, 70% of online shoppers say free shipping is “the reason” they shop online, and 62% say it’s so important that they won’t make a purchase without it.
Figures like this are impossible for retailers to ignore. Unfortunately, it’s not always easy for independent sellers to compete with retail giants like Amazon on shipping costs. Options include conditioning free shipping on minimum order size, absorbing the cost of free shipping, or partnering with fulfillment providers (including Amazon itself) that offer free shipping to independent vendors. Each choice has tradeoffs, but doing nothing at all is no longer an option.
- Scaling Loyalty Programs That Actually Drive Retention
Customer loyalty is more important than ever in a competitive landscape for independent retailers. Unfortunately, few small-to-midsize retailers have successfully cracked the code on brand loyalty.
Third-party rewards programs are tempting but may come at a cost, and many are not exactly friction-free. Bespoke loyalty programs are difficult and costly to administer. There may be a happy medium in combining the best elements of both, but let’s be honest: Most retail leaders are not equipped to “own” this process. Staffing up an in-house “customer experience” department could be what’s needed to drive long-term ROI.
Final Thoughts
The bad news for retail businesses looking ahead to 2025 is that the competitive landscape shows no signs of reverting to “easy mode.” Any way you slice it, the next 12 months — and probably more — will be challenging.
The good news is that many experts expect 2025 to be no worse than the early years of the 2020s, when the retail industry suffered through some truly difficult years.
Seasoned observers like Steve Streit believe that retailers should focus on the fundamentals in 2025. They should hedge against global supply chain uncertainties, boost investments in the customer experience, work hard to retain employees, and focus on safeguarding customer data as threats multiply.
Is this a winning formula for the next year and beyond? Maybe, maybe not. But ignoring these fundamentals is certainly a losing formula that serious retail businesses should want to steer clear of.
