Tech Investments Will Support Retailer Profitability In 2025
Forrester
As retailers brace for a challenging 2025, technology will play a crucial role in offsetting the impact of waning consumer demand on their business. To be sure, retail overall will continue to grow: Globally, we forecast $24.9 trillion total retail sales in 2025. Of that, $5.3 trillion (or about one-fifth) will be online retail sales specifically, almost two-thirds of which will come from China and the US.
Retail growth is reverting to pre-pandemic levels, and businesses across all sectors will face pressure to drive revenue and profit. Factors such as higher wages, lower purchasing power, and increased competition from Chinese merchants like Temu are forcing retailers globally to invest in and explore innovative tech solutions to retain and grow their customer base.
A mix of technological advancements and economic realities will shape the retail landscape in 2025. Here is a sampling of some of what we predict for the retail industry in the coming year:
- One in five US and EMEA retailers will launch customer-facing generative AI applications. Already, 15% of retail and wholesale companies have multiple genAI deployments within their enterprise, per Forrester’s Priorities Survey, 2024. These AI-powered tools will improve both customer outcomes and business efficiencies, particularly in competitive sectors. We expect to see retailers leveraging genAI for enhanced product search, personalized recommendations, and improved category navigation. For their list of potential genAI experiments, savvy retailers start with those that support better site search and navigation or that help to explain recommendations and other content they present to customers that otherwise may seem arbitrary to those shoppers.
- A few US retailers will implement biometric-powered solutions to curb internal theft. As employee theft becomes a growing concern, retailers with high-value or easily stolen merchandise (e.g., health and beauty products) will invest in biometric identification systems to secure employee-only areas and protect valuable inventory. Which companies are likeliest to invest? Think retailers with recognized security issues and easy-to-steal, high-priced, and/or high-demand assortments (perhaps in drugstore and consumer electronics sectors) that will evaluate and then make the costly investment and ultimately launch internal biometrics use.
- US grocers’ operating profit margins will decline by 150 basis points or more. Facing higher supplier costs, waning consumer sentiment, and a slowing job market, grocers will struggle to maintain profitability. Revenue growth for US grocers will see significant pressure: US food-at-home inflation has been in the 1.0–1.2% range since January 2024. Grocers will increase promotional activity and adjust the product mix to low-margin essentials to retain market share. They’ll need to implement cost-cutting measures and explore new revenue streams to stabilize their margins. For grocers, that means analyzing and testing potential revenue and margin gains by growing their private-label shelf space, product mix, and retail media offerings. Brands will need to invest in retail media to offset lower share of shelf.
To thrive in this challenging environment, retailers must be willing to invest in and experiment with new technologies and strategies. Some initiatives will succeed while others will fail, so the key is to cultivate a culture of innovation and adaptability.
Download our complimentary Predictions guide, which cover more of our top predictions for 2025. Get additional complimentary resources, including webinars, on the Predictions 2025 hub.
This post was written by VP, Principal Analyst Sucharita Kodali and it originally appeared here.