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For retailers, 2025 is shaping up to be a rollercoaster ride.
On the one hand, there’s excitement about the economy under President Donald Trump. On the other hand, people want bargains. Although most consumers feel positive about the year ahead, more than half plan to spend cautiously. To stretch a buck as inflation keeps biting, three-quarters say they’re more likely to buy cheaper brands.
Frugality is just one of the forces that could make life tough for retailers in the coming year. No brand, big or small, is safe from these pressures, so complacency isn’t an option.
Here are five threats facing retail brands — and how to get ahead of them.
Related: What Big Brands Can Learn From Mom & Pop Shops to Connect With Their Customers
1. The competitive landscape keeps getting fiercer
Sorry to break it to retailers tired from recent volatility, but in 2025, they’ll need to work harder — and smarter — than ever to win customers.
For starters, the big players will keep grabbing more market share. Walmart, whose online sales topped $100 billion in 2023, is just one example. Consumers are also spoiled for choice, to put it mildly. There are now about 27 million ecommerce sites — nearly triple the total five years ago.
Marketing costs, the biggest variable expense for brands, keep rising t,oo. The average price of acquiring a customer climbed more than 200% between 2013 and 2022. On top of that, stricter data privacy laws are messing with online advertising. In Europe, for example, Meta must now let Facebook and Instagram users choose less-personalized ads.
There’s still room for upstarts, but you can’t beat a giant by being taller than them — you have to invent your own game. To avoid getting lost in the shuffle while also breaking the ad habit, retailers should cultivate a community and connect with people. Just ask Kith, the online streetwear brand that spends zip on ads yet has grown into a global business with a cult-like following.
How? In addition to opening strategically located physical stores in major cities, Kith collaborates with other brands and offers limited-edition releases. It’s enlisted celebrities like Brian Cox, LaKeith Stanfield and Blackpink’s Lisa to model its clothing. Kith also leverages its loyalty program, whose perks include members-only custom items, early access to certain products, and VIP event invites.
2. Price-conscious shoppers expect more for less
Shoppers might be looking for bargains in 2025, but they also want stuff that’s built to last and doesn’t trash the planet. After all, nearly 95% of consumers favor retailers that offer quality guarantees or warranties, while about 80% think sustainability matters.
Ticking all three boxes — affordable, durable and sustainable — is a tall order. So, how can sellers aim to meet all three?
Leaning into the circular economy can be a solid step toward that ideal. For example, Patagonia sells used gear, while Reformation offers a clothing recycling program with a commitment to full circularity by 2030. AG Jeans launched a collection made from 95% recycled AG denim, and Levi’s does repairs and custom-tailoring. Nike, which is moving toward more sustainable materials such as organic cotton and recycled polyester, also gives shoppers value by letting them customize their kicks for no extra cost.
3. Tariffs are almost guaranteed — but workarounds exist
As retailers look ahead to 2025, they can’t ignore Trump’s tariff threats.
If the returning president slaps tariffs of 10% to 100% on all imports, it will wreak havoc on supply chains as everything from China gets more expensive. When retailers raise prices to cover the tax, US consumers could lose $78 billion in annual spending power across six key product categories, according to one dire forecast.
Will shoppers end up eating the cost? In many cases, I doubt it. Because people love affordable prices, big retailers will have to figure out how to keep them that way. To prepare for tariffs, some companies are stockpiling inventory and rethinking their supply chain strategy.
Of course, many smaller brands can’t play that pricing game. Their best bet is to become more specialized, with a narrower product selection that plays to their competitive advantage.
They could steal a page from cosmetics retailer Glossier, whose tight product list helps create buzz among its fiercely loyal customers when a rare new offering appears. Shoe brand Allbirds learned this lesson the hard way — it was forced to pull back to its core footwear line after spreading itself too thin with a venture into apparel.
Related: What Should I Buy Before Tariffs Get Implemented?
4. Changing consumer tastes keep retailers on their toes, with Gen Z leading the way
In response to consumer demand, digital will continue to transform the retail landscape in the year ahead, leaving no industry immune.
Just look at the grocery business — long sheltered from ecommerce — where online pickup and delivery are taking a bite out of corner stores. In the US, online grocery sales reached a monthly high of $10.5 billion this past October, up 28% year-over-year.
Retailers must also grapple with the growing influence of Gen Z, whose spending could reach an eye-popping $12 trillion by 2030. Interestingly, these young consumers might be moving emotionally and physically closer to brands. More than 40% of them — a much bigger share than consumers at large — prefer a brand’s own online store to a multi-merchant platform.
Gen Zers may start their shopping journey online, but almost half of their mass merchandise and grocery purchases take place in-store. Don’t forget that this generation of shoppers is also seeking the magic trifecta: quality, sustainability and low prices.
The challenge for retailers? Delivering a shopping experience that caters to consumers’ changing tastes and meets them where they are. For example, eyewear maker Warby Parker’s Home Try-On program lets customers choose frames online, while its physical locations offer in-person fitting and purchase. This model meets Gen Z’s desire for flexibility and convenience.
5. Tech levels the playing field, pushing retailers to get human
Sophisticated retail technology will become table stakes in 2025, forcing brands to make their mark in other ways.
Tech is leveling the playing field for retail giants and smaller businesses. For example, third-party logistics (3PL) is now widely available, letting anyone tap into the plumbing of retail. And thanks to the rise of generative AI, small brands can quickly, easily and cheaply expand their customer support teams. In one survey, 93% of retailers said they’re using AI to help personalize customer communications such as emails and product recommendations.
This shift is a problem for large retailers, which can no longer simply outspend their smaller rivals on technology. But tech advances have also enabled bigger players to become nimbler — an area where smaller companies used to excel — so both are threatened.
As AI-powered search and one-click purchasing become standard, brands must offer more than efficiency by engaging and entertaining people. This means adding a human touch both online and offline. For example, imaginative visual displays in brick-and-mortar locations or an immersive activation at a pop-up can spark interest and create an emotional bond.
Ultimately, the retail brands that succeed in 2025 will find ways to cut through the noise while also making shoppers feel valued. Technology might help get customers in the door, but genuine connections will keep them coming back.
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