2025 ISSUE 4
5 Trends Shaping the
Retail Industry in 2025
GUIDE TO NEXT
2025
Contents
Introduction......................................................................... 3
Economic headwinds drive retail reinvention................ 4
AI is key to surviving volatile supply chains.................. 7
Monetize or be marginalized with retail media............ 9
Generative AI turns shoppers into co-creators
of retail experiences........................................................... 11
.
Health and wellness drives consumer spend.................. 13
Looking ahead to 2025...................................................... 15
Contact us............................................................................. 16
Guide to Next 2025 Publicis Sapient | 2
Introduction
The retail industry is on the cusp of significant transformation as we enter 2025.
A confluence of technological advancements, evolving consumer behaviors
and economic shifts is reshaping the landscape. Economic pressures, including
inflation, have reduced disposable income for many, creating distinct customer
segments with a growing emphasis on value.
To navigate these challenges, retailers have reduced prices on many products
and, to offset that cost burden, have become more cost-conscious, prioritizing
profit maximization and gaining a share of customers’ wallets. Simultaneously,
shifting demographics, such as declining birth rates and increasing diversity, are
influencing retail strategies. The rapid adoption of mobile and social shopping,
coupled with the surge in generative AI investments, has accelerated the digital
transformation of the industry.
Several key trends are emerging that will redefine the retail landscape next
year, and retailers need to be prepared.
In this report, Publicis Sapient retail industry experts break down the
top five trends that will shape the industry a year from now, based on
our market research and industry expertise.
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01 ECONOMIC HEADWINDS DRIVE
RETAIL REINVENTION
In 2025, ongoing economic instability and widening income inequality mean
that retailers will need to get creative with cost-cutting measures and growth
strategies. According to Publicis Sapient research, the number two generative
AI transformation goal for retail executives is cost reduction, behind increasing
productivity, reflecting the current economic situation for the industry.
“THERE’S A CONTINUALLY increasing
GAP BET WEEN THE RICHEST AND
THE POOREST. VERY DISTINCT
SEGMENTS ARE EMERGING.”
Saba Arab Managing Director at Publicis Sapient
One of the clear effects of this Unit share
economic instability so far has been the
24.7% 25.5%
momentum across private-label retail
brands to offset the reduced prices 75.3% 74.5%
of products, something that retailers
can continue to take advantage of.
2022 2023
Private-label brands gained share over
name brands last year, rising from 24.7 Name brands
percent of total unit sales in 2022 to Private brands
25.5 percent in 2023.
S ource: Circana, 2023
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This trend is unlikely to reverse in 2025. Although inflation has cooled since its
peak in 2020, it remains a significant factor. In the U.S., inflation has hovered
around 3 percent throughout 2024 and is not expected to drop to 2 percent until
2025 or later. Similarly, while inflation in the U.K. decreased to 2 percent as of
July 2024, consumer spending habits remain cautious, suggesting that shoppers
will continue to tighten their purse strings.
Adding to the financial strain on consumers, U.S. customer debt has surpassed
$17 trillion, compounded by persistently high interest rates. This debt burden is a
major factor driving down retail sales, forcing retailers to rethink their strategies.
This continued inflation means retailers need to tailor their offerings to both value-
based shoppers, the majority, and those willing to spend more on premium
products.
Tesco, the U.K.’s largest supermarket chain,
has successfully navigated this economic
downturn by focusing on minimizing
spending, enhancing operational efficiency
and leveraging its Clubcard loyalty scheme
to deliver more value to customers. This
focus on value has been a key part of
Tesco’s strategy, aligning its offerings with
customer needs during tough economic
times. The recent launch of its third-party
marketplace further demonstrates Tesco’s
commitment to diversifying its growth
strategies, following in the footsteps of
Walmart, Kroger and Carrefour.
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Loyalty programs, like Tesco’s Clubcard, not only help retain customers during
challenging times but also allow retailers to segment their customers more
effectively. Instead of focusing solely on historical spend, retailers are now
considering the long-term value of their customers. For instance, a customer who
spends $100 per year but rarely returns items may be more valuable than one
who spends $1,000 but frequently returns purchases. This shift in focus is driven by
the need to maintain profitability while delivering value to loyal customers.
Additionally, retailers are increasingly focused on changing their marketing
operating models to deliver more agile, personalized communications throughout
the customer journey. This high-touch, highly segmented approach is being
leveraged by both large and small retailers to grow their top line, even in a
challenging economic environment. While some backlash has arisen over cost-
saving measures, like stricter return policies, experts like retail industry lead,
Publicis Sapient, predict that these models will soon become the norm, much like
how paywalls have become standard for top media companies.
Finally, while major investments in luxury product innovation or customer
experience might be risky, there are strategic back-end investments that retailers
can make to support long-term growth and resilience.
“IF RETAILERS JUST TAKE A BIT OF
RISK, THERE ARE A LOT OF WAYS
THEY COULD unlock significant savings
THROUGH INVESTING IN LOYALT Y
PROGRAMS, BACK-END AI, RETAIL
MEDIA NET WORKS AND SUPPLY
CHAIN OPTIMIZATION.”
Guy Elliott Retail Industr y Lead at Publicis Sapient
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02 AI IS KEY TO SURVIVING
VO L AT I L E S U P P LY C H A I N S
Supply chain optimization is a critical investment for retailers in 2025, and with
the acceleration of AI technology, retailers have more visibility than ever. Persistent
disruptions, fueled by geopolitical tensions, global trade challenges and the
increasing frequency of natural disasters, have made supply chains more complex
and unpredictable than ever before. These challenges impact everything from
securing raw materials to delivering finished products, affecting both costs and
product availability.
To navigate this turbulent landscape, retailers are turning to artificial intelligence
(AI) and machine learning (ML) to mitigate losses. In fact, Publicis Sapient
research shows that 34 percent of retail executives say supply chain efficiencies
and improvements are a top customer engagement priority, the highest priority
compared to executives across all industries. According to Saba Arab, managing
director at Publicis Sapient, AI/ML technologies represent a significant opportunity
for retailers to achieve a substantial return on investment.
“AI surfaces real-time insights
into supply and demand, and
generative AI can present these
insights in easy-to-understand
language,” says Arab.
For example, the ALDO Group,
an apparel retailer, has created
a demand-forecasting machine
learning model called “Delphine.”
This model helps ALDO better
predict demand to ensure they
have the right inventory in the
right channels.
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Another supply chain use case for retailers is returns optimization. According to
Satyendra Pal, group vice president and global omni fulfillment practice lead at
Publicis Sapient, AI will play a significant role in optimizing retail returns, through
prevention upfront and cost optimization in the return process, as businesses are
seeing increasing returns year over year.
For prevention upfront, analyzing purchase and return data helps retailers identify
items frequently targeted by fraudsters, allowing for more careful screening and
tailored return policies to deter fraud. AI can evaluate return histories to detect
suspicious behaviors and patterns indicating organized fraud. This information can
be used in order scoring to reduce return fraud.
For cost optimization in the return process, retailers can leverage AI to fine-tune
the return window based on a retailer’s specific customer base and product mix,
aligning customer preferences with cost-control objectives.
Ultimately, AI-driven supply chain optimization is a strategic imperative for retailers
looking to thrive in an increasingly volatile environment—but the AI upgrades
require retailers to surface hidden supply chain data in Excel spreadsheets, as well
as transition to a more composable technology application that can surface data
from anywhere.
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03 MONETIZE OR BE MARGINALIZED
WITH RETAIL MEDIA
Retail media networks are rapidly evolving from a U.S.-centric grocery phenomenon
to a global competitive landscape, with even more growth to come. In last year’s
Guide to Next 2024 report, we predicted that retailers would find profitability from
expanding their advertising capabilities and creating networks in new non-U.S.
markets.
In the past year alone, we’ve seen all of this and more through massive retail media
moves across retail sectors and regions, from launching one of the first convenience
retail media networks in the U.S. to helping Walmart potentially offer in-store retail
media to non-endemic advertisers. This year, it’s imperative for retailers who haven’t
yet jumped on the bandwagon to explore data co-ops and other data-sharing
opportunities. By participating in broader networks, they can extend their media
reach and make their retail media more attractive.
However, this doesn’t mean that retailers shouldn’t also create their own networks.
Retailers still have the opportunity to monetize for their own properties, like their
website. As consumers continue to flock to private-label retail brands during times
of economic hardship, this is a very lucrative strategy for retailers across sectors to
leverage their websites to sell national CPG-branded products, from convenience
stores to grocery to apparel.
“CONTRIBUTE [DATA] TO A MARKETPL ACE
AND CREATE A BIGGER CLEAN ROOM
WHERE EVERYONE DOES DATA SHARING,
BECAUSE CPGS ARE JUST LOOKING FOR
THE PL ACE WHERE THEIR ADVERTISING
WILL BE THE MOST POWERFUL, AND THEN
ULTIMATELY, YOUR ONSITE RETAIL MEDIA
PROPERTIES can still be a valuable part of
t h a t b u y i n g p r o c e s s .”
Sudip Mazumder Retail Industr y Lead, Publicis Sapient
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Retailers should also consider developing or expanding their retail media networks.
This involves creating a robust digital infrastructure that supports targeted advertising
across various channels, including in-store displays, websites, connected TV and
mobile apps.
By partnering with brands to offer co-branded promotions and leveraging customer
data to enhance ad targeting, retailers can create additional revenue streams.
Overall, success in retail media in 2025 will hinge on balancing advertiser value,
consumer privacy and operational transformation. It’s a much more delicate and
complex dance than it was five years ago, but the revenue opportunities are only
increasing. According to Arab, “This requires a shift in mindset from traditional retail
to a data-driven, media-focused business model.”
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04 GENERATIVE AI TURNS
SHOPPERS INTO CO-CREATORS
OF RETAIL EXPERIENCES
The retail industry is on the cusp of a personalization revolution, driven by the rise of
generative AI. However, it’s not the kind of personalization that retailers have been
discussing for the past decade or more. Rather than using customer demographics
and historic purchasing data to tailor the shopping experience, generative AI allows
customers to organically reveal their shopping intent in real time and personalize
their journey as they go. Retailers won’t just be guessing based on customer data;
instead, they’ll be conversing with customers in real time. According to Publicis
Sapient research, 63 percent of retail executives believe personalization or
hyper-personalization will be “very or extremely important” to their organization’s
application of generative AI in the next three years.
Sudip Mazumder, retail industry lead at Publicis Sapient, emphasizes the
importance of understanding consumer behavior and leveraging AI to deliver
personalized experiences. “Hyper-personalization is all about asking what
consumers want when they’re visiting my properties and tailoring the experience
to their needs,” he explains.
Intent-based search technologies, like those implemented by Homes & Villas by
Marriott Bonvoy, can now guide consumers more efficiently through their shopping
journey. Mazumder describes this as akin to having a personal shopper available
digitally.
“IF YOU GO TO A STORE, THERE IS A
PERSONAL SHOPPER WITH YOU. NOW,
with AI tools, D I G I TA L P R O P E R T I E S
CAN OFFER SIMIL AR PERSONALIZED
RECOMMENDATIONS.”
Sudip Mazumder Retail Industr y Lead, Publicis Sapient
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The application of generative AI goes beyond digital interactions. It enhances in-
store experiences by integrating technology with physical retail. Mobile apps can
now guide customers through stores based on their preferences and shopping
history, providing a seamless and personalized shopping experience. “You can
use your mobile app to navigate the store, and store associates can use facial
recognition to help you based on your needs,” Mazumder notes.
Leading retailers like Walmart, Lowe’s THE APPLICATION
and Home Depot are already capitalizing OF GENERATIVE
on these advancements, and more AI GOES
retailers will follow suit in 2025. They BEYOND DIGITAL
are implementing personalization at INTERACTIONS.
scale, using customer data to drive sales IT ENHANCES IN-
and enhance the shopping experience. STORE EXPERIENCES
“Walmart, Lowe’s and Home Depot are BY INTEGRATING
making significant progress in hyper- TECHNOLOGY WITH
personalization, knowing what customers PHYSICAL RETAIL.
are looking for when they come to the
store or the site,” says Mazumder.
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05 HEALTH AND WELLNESS DRIVES
CONSUMER SPEND
The health and wellness trend has fundamentally reshaped retail, transforming
consumer behavior and driving significant growth. In 2025, we’ll see this trend
expand even more, especially as Gen Z gains purchasing power. The surge in
demand for fitness and wellness products, exemplified by the success of brands like
HOKA at Dick’s Sporting Goods, has made health a core consumer value. HOKA,
for instance, has seen its sales triple in the last two years, contributing to a 20
percent growth in Dick’s Sporting Goods’ overall footwear category.
To capitalize on this opportunity, retailers must integrate wellness offerings across
various categories. For example, Target has successfully expanded its Good &
Gather brand to include a wellness line that offers vitamins, organic snacks and
plant-based protein options, which saw $1 billion in sales in its first year and is
currently on its way to $4 billion. While many retailers have already incorporated
health services, the focus is increasingly shifting towards mental health. Despite
challenges faced by tech companies and retailers in the health services space—
like Amazon’s discontinuation of its Halo health-tracking devices—the growing
prioritization of mental well-being presents a substantial market opportunity. The
global mental wellness market is projected to reach $251.65 billion by 2031,
growing at a compound annual growth rate of 6.15 percent.
Consumers are increasingly willing to invest in their overall health, with spending
on wellness products and experiences
THE HEALTH AND
rising, especially in the U.S. and for
WELLNESS TREND
younger consumers. According to the
HAS FUNDAMENTALLY
Global Wellness Institute, the U.S.
RESHAPED RETAIL,
wellness economy is valued at $1.8
TRANSFORMING
trillion, the largest in the world—and the
CONSUMER BEHAVIOR
two most profitable markets are physical
AND DRIVING
activity and personal care and beauty.
SIGNIFICANT GROW TH.
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This is especially true for younger generations, who view health and beauty as
interconnected aspects of personal care. The convergence of health and beauty is
a key trend for 2025, driven by the influence of social media platforms like TikTok,
where trends like “skin cycling” and “wellness routines” have gained massive
traction. Demographic profiles for the “Clean Beauty” conversation on Instagram
are uniformly female, age 30 and older and white-skewing. In contrast, on TikTok,
the category is gaining traction with a lower-income audience, making way for the
democratization of clean beauty and even clean living.
By strategically incorporating mental wellness products and services, and by
emphasizing the intersection of health and beauty within owned brands, retailers
can effectively tap into this expanding market and drive sales growth. For
example, Sephora has successfully launched its Clean + Planet Positive program,
which focuses on clean beauty products that align with wellness values. Ulta
expects overall revenue to grow 12 percent in the global clean beauty market by
2027, according to Retail Dive.
The concept of health and wellness is constantly changing. For retailers, this
means AI-powered trend forecasting is more important than ever before—social
media platforms like TikTok and Instagram are akin to a crystal ball to predict
consumer demands in the health and wellness space, and retailers with an agile
operating model and the right analytics tools to act on these trends will come out
on top.
BY STRATEGICALLY INCORPORATING MENTAL
WELLNESS PRODUCTS AND SERVICES, AND BY
EMPHASIZING THE INTERSECTION OF HEALTH AND
BEAUT Y WITHIN OWNED BRANDS, RETAILERS CAN
EFFECTIVELY TAP INTO THIS EXPANDING MARKET AND
DRIVE SALES GROW TH.
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LOOKING AHEAD TO 2025
There’s a reason why AI comes up in the majority of retail conversations. AI is
supercharging not just the retail industry but society as a whole, propelling it into
a period of unprecedented change. In the year ahead and beyond, retailers must
embrace innovative solutions that leverage AI or risk being left behind.
What does the future look like? The ability to rapidly prototype and develop
functional applications through AI coding is on the horizon, promising to revolutionize
the way retailers operate. While this technology is still evolving, its potential impact is
undeniable.
As retailers explore new and
innovative approaches to engage
customers, AI-driven development will
likely become a cornerstone of their
strategies, enabling faster time to
market for new ideas and experiences.
This technology won’t be a significant
part of retailers’ 2025 budgets, but
the year ahead will still be a stepping
stone into this next era of retail and
an opportunity for innovative retailers
to take calculated risks, despite
economic challenges.
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CONTACT US
GUY ELLIOTT
Retail Industry Lead, Publicis Sapient
[email protected]
SUDIP MAZUMDER
Retail Industry Lead, Publicis Sapient
[email protected]
SABA ARAB
Managing Director, Publicis Sapient
[email protected]
Publicis Sapient is a digital transformation partner helping established organizations get to their future, digitally enabled state, both in
the way they work and the way they serve their customers. We help unlock value through a startup mindset and modern methods, fusing
strategy, consulting and customer experience with agile engineering and problem-solving creativity. As digital pioneers with 20,000
people and 53 offices around the globe, our experience spanning technology, data sciences, consulting and customer obsession—
combined with our culture of curiosity and relentlessness—enables us to accelerate our clients’ businesses through designing the
products and services their customers truly value. Publicis Sapient is the digital business transformation hub of Publicis Groupe. For more
information, visit publicissapient.com.
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