Retail industry 2025 priorities: sustainability, AI and high street revival

RSM UK’s head of retail Jacqui Baker discusses the complex outlook for the retail sector in 2025, with challenges in the form of increased cost pressures, but opportunities to capitalise on building efficiencies through AI and effective omnichannel strategies: 

Post-Budget cost increases - “The Autumn Budget dealt quite a blow to the already-struggling retail sector. Not only does the industry account for a significant proportion of business rates, but it also relies on a large workforce, so it will be disproportionately impacted by the rise in employers’ National Insurance Contributions. Higher costs will also eat into available funds for future pay rises, benefits or pension contributions – hitting retailers’ cashflow in the short term and employees’ remuneration in the longer term. Retailers must get creative to manage their margins and attract footfall and spend, plus think outside the box to incentivise employees if they’re to hold onto talented staff. While it will undoubtably be tough for the sector, with lower inflation and interest rates coming down, this may help to ease operational costs and boost consumer confidence, which should flow through to increased retail spending.”

Revival of the high street - “Consumers are seeking the best of both worlds – incorporating both in-store and online shopping into their routines. This hybrid approach reflects a desire for flexibility and a tailored experience. RSM UK’s Consumer Outlook found that 46% of consumers prefer to shop in-store for weekly purchases, compared to 29% for online. However, for monthly purchases, this changes to 29% for in-store and 47% for online. The most important in-store aspect for consumers was ease of finding products (59%), versus convenience (37%) for online. Tactile shopping experiences remain an integral part of the purchase journey for shoppers, so retailers need to prioritise convenience and the opportunity for discovery to bring consumers back to the high street. The government’s latest initiative to auction off empty shops is also a welcome boost to the high street; making bricks and mortar a more accessible option for smaller, independent retail brands.”

Artificial intelligence - “AI allows retailers to analyse vast datasets on consumer behaviour and market trends to produce personalised product recommendations, optimise inventory management and forecast sales patterns, plus enhance the customer experience through AI chatbots. AI will undoubtedly become even more sophisticated over time, creating immersive and interactive experiences that bridge the gap between online and in-store. Emerging trends include hyper-personalisation throughout the entire shopping journey, autonomous stores and checkouts, and enhanced augmented reality experiences to “try” products before buying. AI is a transformative investment for the future that determines the long-term viability of retail businesses, so it is key retailers get on board to avoid being left behind.”

Retail crime - “The retail sector is extremely susceptible to crime and cost of living pressures have made it more prevalent than ever, with shoplifting offences reaching a record high. Criminals are becoming savvier with their techniques and ability to spot opportunities for theft. Examples range from organised crime events via social media to people claiming their orders haven’t been delivered. Crime has a knock-on effect on both margins and staff morale, so while the government is cracking down on retail crime, retailers also have a part to play by investing in data to prevent and detect theft. Data is extremely powerful in minimising losses and improving the overall operational efficiency of the business.”

Sustainability - “As the cost of living eases, sustainability is fast becoming a key factor in consumers’ shopping habits and values. RSM’s Consumer Outlook found 46% would pay more for products that are sustainably sourced, up from 28% last year; while 44% would pay more for products with environmentally friendly packaging, compared to 36% last year. However, ESG concerns vary depending on age and income, holding greater importance among high earners and millennials. With financial pressures expected to continue easing next year, we anticipate a renewal of sustainability and environmentally conscious spending habits. Retailers ought to tap into this by understanding the preferences of different demographics and most importantly, their target market.”