State of the State 2025: Retailers invest in technology amid tepid growth expectations
by January 27, 2025 11:28 am 237 views
The diverse retail sector withstood inflation, high interest rates and changing consumer preferences in 2024, but still managed to garner a combined $5.28 trillion in sales, up 3.6% from the prior year, according to the National Retail Federation (NRF).
The sales results are not adjusted for inflation which ended the year up 2.9%, according to the U.S. Bureau of Labor Statistics.
“The U.S. economy ended 2024 on a high note and the outlook looks promising for 2025,” said Jack Kleinhenz, chief economist with NRF. “Recent performance shows the economy is on solid footing and has been growing at a steady pace and above its historical average. … There is good reason to expect healthy economic growth in 2025 even though its shape will depend upon a lot of moving parts.”
He said trade, immigration, tax and spending policies could impact economic activity, but the resilience of the U.S. consumer is a positive.
Retail analysts at Colliers are hopeful about modest retail growth, with some categories like home retail and mass merchants having a more pessimistic outlook.
The Colliers report included recent retailer survey data that found 56.7% of apparel retailers have modest growth expectations. Grocery retailers were most positive at 87.5% followed by beauty/drug category retailers at 73.3%. Other discretionary retailers – discount, off-price, specialty – were slightly optimistic at 56.5%. Mass retailers such as Walmart or Target were most cautious with just 35.7% being more optimistic for sales growth this year. The home retail segment at 45% was the second most pessimistic for 2025 sales growth.
TARIFF CONCERNS
The report notes that threats of tariffs by President Donald Trump on China, Canada, Mexico and other key trading partners were the biggest factor hindering optimism given the uncertainty about the pricing impact of tariffs on foreign goods sold in the U.S.
Walmart Chief Financial Officer John David Rainey recently said Walmart will work to mitigate any impact the proposed tariffs. He said that two-thirds of goods sold at Walmart are made, grown or assembled in the U.S. Competitors like Target, Dollar Tree and other primarily non-food retailers of general merchandise have a higher percentage of imported goods that could be subject to the proposed tariffs, according to industry analysts.
Gina Logan, a retail analyst at Kantar, said Walmart is more protected against tariff impact given their wider range of suppliers, more advanced supply chain and ability to pivot and predict demand through forecasting and react much faster than Target. She said roughly 60% of Walmart’s sales come from grocery, compared to less than 25% of Target’s sales last year.
Target CEO Brian Cornell has voiced concern about proposed tariffs saying they lead to higher prices. He said in November that proposed new tariffs would add $50 million to $60 million in cost of goods per quarter.
TECHNOLOGY, CONSUMER STRENGTH
While there remains uncertainty about sales growth in 2025 that is not deterring investments in technology. Colliers reports 88.1% of retailers in its survey will invest in automation for warehouses, 87.3% will invest in omnichannel capabilities, 71.2% will spend on artificial intelligence (AI), 63.3% will spend on RFID technology and 57.5% will invest in store automation. One in three will add self checkouts, and 30% will also invest in augmented reality, 17.8% are investing in autonomous delivery and 16.9% are investing in walkout technology for stores. One in ten will invest in metaverse capabilities.
“Unsurprisingly, technologies like augmented reality and the metaverse have become less relevant to many retailers. Instead, the priority has shifted to more practical innovations that enhance operational efficiency and streamline business processes and lower service costs while improving customer experiences,” the report noted.
Most consumers will spend the same or slightly less in 2025 compared to 2024, despite the growth of digital and personalized shopping options that have encouraged spending by offering more accessible and tailored purchasing experiences, Colliers reported.
Analysts expect retailer investments in technology and targeted promotions will make it easier for consumers to shop in ways that fit their lifestyles and budgets, Nicole Larson, retail research manager at Colliers, noted in the report.
The survey also found grocery and food service retailers continue to feel the impact of inflation, with 60% of consumers reporting they’re spending more than last year. Saving on groceries is still a priority as consumers look to offset rising prices by cutting back on discretionary purchases and focusing on essentials. On average, consumers are spending $25 more per month on food and beverages, with 70% attributing this increase to price hikes, the report notes.
Kleinhenz said spending in the recent holiday season underscored the solid growth in the U.S. economy.
“Even though consumers are still relatively healthy and there was a notable increase in spending, they remain budget conscious and that will likely be the case in the first quarter of 2025,” he said.
Editor’s note: The State of the State series provides reports twice a year on Arkansas’ key economic sectors. The series publishes stories to begin a year and around mid-year to provide an update on the state’s economy. Link here for the State of the State page and previous stories.