Retail industry outlook 2025

What consumers are looking for in 2025

2024 was marked by cautious spending and fragile consumer confidence. While shoppers remained careful with discretionary purchases, focusing on essential goods and value-driven transactions, retailers faced the ongoing challenge of managing costs while maintaining competitive pricing. As a result, many businesses reconsidered their supply chains in efforts to streamline operations and stay resilient.

It was a disappointing end to 2024 for the sector after a lacklustre Golden Quarter. The latest ONS retail sales figures show volumes have fallen by 0.3% in December, driven by a decline in food stores (down 1.9%), however clothing jumped 4.4% and department stores were up 1.2%.

The UK economic outlook for 2025 leans towards cautious optimism. Economic growth is expected to pick up, driven by rising government and consumer spending as real incomes increase, interest rates decline, and measures from the Autumn Budget take effect. Real household disposable incomes surged by 3.3% over the past year, bolstered by robust wage growth, previous tax cuts, and lower interest rates. This trend is expected to continue in 2025, albeit at a slower pace. 

As consumer confidence builds, more shoppers are expected to return to the high street, likely increasing retail spending. However, retailers will face significant challenges this year, such as rising costs, a potential demand dip in Q1, the added burdens of National Insurance hikes, wage increases, and the full implementation of packaging extended producer responsibility (EPR). 

Unlocking consumer spending potential

Our research, based on a survey of 2,000 consumers, reveals that while 52% of respondents feel financially comfortable, caution remains the dominant sentiment. 27% plan to reduce their fashion purchases, and 20% intend to cut back on grocery spending. As a result, retailers will need to remain agile and adopt innovative strategies to entice customers and boost spending.

Our latest Consumer Outlook report explores the shifts in consumer sentiment, uncovering the preferences, expectations, and behaviours that are reshaping how people shop today. From the rise of hybrid shopping to the demand for personalised experiences across all commerce channels, 2025 will see retailers striving to meet modern consumers' expectations in a world where boundaries between online and offline continue to blur. 

Retail reimagined - navigating the new reality 

Consumers now demand a seamless blend of online convenience and in-store experience. Our research shows that across all age groups, shoppers are increasingly integrating both online and in-store channels into their routines. With 81% regularly shopping online and 83% regularly choosing the in-store experience, the hybrid shopping trend is here to stay. 

For retailers, the challenge is not whether to invest in online or physical stores, but how to strike the right balance.  

The pandemic accelerated the shift to online shopping, but over the past two years, online sales have stabilised at around 27% of total retail sales. This has prompted retailers to assess the profitability of each channel and make informed decisions about where to invest. 

E-commerce evolution

While the journey to enhance online profitability has been gradual, e-commerce continues to play a pivotal role in the growth strategies of many businesses and will continue to do so in 2025. 

For some brands, an online-only strategy makes sense, offering unmatched convenience, scalability, and cost-efficiency. Digital-native brands thrive in this space, focusing on sleek e-commerce platforms, direct-to-consumer models, and data-driven personalisation to cater to a tech-savvy audience. 

When it comes to online shopping habits, our research found that 47% of the consumers do their non-grocery shopping online on a monthly basis, with only 3% never shopping online.  

Convenience is a key driver for the online consumer. 37% of consumers cited convenience as the reason they choose to shop online, and 25% are drawn to online prices.  

Gymshark, a UK-based athleisure brand, has leveraged social media, influencer partnerships, and direct engagement to build a loyal online community. Amazon, although exploring physical retail with initiatives like Amazon Fresh and Amazon Go, continues to dominate the online market with its vast product selection, convenience, and scalability. 

Craving the in-store experience

For many other retailers, the future lies in a blend of physical and digital presence. Brick-and-mortar stores continue to hold value, particularly as spaces for immersive experiences, personalised service, and community building.  

Our research suggests that consumers are looking for better in-store promotions and a broader range of products to entice them into physical stores. 

Several UK retailers are planning to expand their physical footprints in 2025. For example, Aldi plans to invest £600m in opening 30 new stores across the UK in 2025, while Holland & Barrett aims to open 50 new stores this year. Meanwhile, luxury fragrance brand Jo Malone London intends to open at least a dozen new stores outside London, increasing its store count from 37 to 45 by mid-2025. 

Enhancing omnichannel experiences

Retailers are increasingly adopting omnichannel strategies, combining the convenience of online shopping with the personalised experiences offered in-store.  

Key features such as buy-online-pick-up-in-store (BOPIS), augmented reality (AR) displays, and mobile integrations will become essential for creating seamless customer journeys.  

There are a number of UK retailers that are notable players when it comes to omnichannel strategies and are poised to enhance their investments in this area in 2025.  

John Lewis has committed to an £800m investment plan, which includes refurbishing its flagship Oxford Street store to enhance in-store experiences. Similarly, M&S has been actively investing in digital transformation to complement its physical stores. The retailer has focused on enhancing its online platform, expanding its e-commerce capabilities, and integrating services such as in-store pickups and returns for online orders, aiming to provide a cohesive shopping experience across all channels. 

The choice between online dominance or balanced integration depends largely on the brand, its audience, its ability to invest, and its goals. Some will lean heavily into digital, while others will continue to invest in the tangible touchpoints only physical stores can offer.  

What’s clear is that the most successful retailers will be those who truly understand their target market and customer behaviours in order to adapt their strategies and invest in the more impactful areas accordingly. 

Digital transformation and shifting demographics 

As technology evolves, consumers are increasingly expecting a consistent, connected, and personalised shopping journey, whether they’re online or in-store. This demand is especially pronounced among younger generations. The growing influence of Gen Z and Millennials as key demographics with substantial purchasing power marks a significant transformation in the retail industry.  

As generations that have grown up in the digital age, these groups prioritise mobile-first and frictionless shopping experiences across multiple channels. Their technological preferences are redefining how businesses engage with their customer base.  

Retailers are responding by investing in cutting-edge technologies like AI-driven personalisation, advanced inventory management, and AR to deliver a seamless customer experience. For example, virtual try-ons are gaining popularity, particularly in the fashion and home goods sectors, providing consumers with a more immersive shopping experience.  

Our research reveals compelling generational differences in how retail technologies are embraced by today’s consumers. While only 7% of all respondents cited the ability to see how a product would look through AR as the main reason they choose to shop online, this figure rises to 11% for Gen Z and 12% for Millennials, indicating their growing influence in shaping these trends. 

At the same time, in-store technology is becoming increasingly significant. Features such as self-checkout and virtual try-ons appeal to 19% of respondents overall. However, the importance of these technologies jumps considerably among younger generations, with 28% of Millennials and 31% of Gen Z prioritising them. 

The acceleration of digital transformation will continue to redefine the retail landscape. From AI-driven analytics to cutting-edge supply chain solutions, enhancing operational efficiency while delivering exceptional customer experiences will remain a priority throughout 2025. 

Sustainability - a competitive edge in retail?

Sustainability was a key focus in 2024, and it will continue to shape retail strategies in 2025. Consumers are demanding more transparency and ethical practices from brands.  

Despite the financial strain caused by the cost-of-living crisis, our research shows that 46% of consumers are willing to pay more for sustainably produced products, an increase of 8% from the previous year.  

This sentiment is especially strong among high-income households, with 66% of those earning over £80,000 willing to pay more for sustainable goods. Additionally, 61% of this group say they would pay more for products with environmentally friendly packaging. 

As sustainability becomes a baseline expectation, brands that lead in eco-friendly practices will likely capture more market share. Circular economy initiatives such as resale platforms and repair services are expected to grow in prominence as consumers increasingly prioritise ethical consumption.  

To discuss this analysis further or to explore how we can help your business navigate the challenges and opportunities of 2025, contact Jacqui Baker or your usual RSM contact.