While economists are still sorting out how potential tariffs will impact consumer spending in 2025, two research papers published just prior to the president-elect’s trade announcement against Mexico, Canada and China, identified several preexisting challenges already in place. The analysts who authored the reports also offered retailers and brands strategies to mitigate economic disruptions.
Similar to other research reports that have been issued over the past month, these two recent ones point to the need to invest in technology and to focus on creating a more agile supply chain as a way to mitigate market disruptions.
Anjee Solanki, national director of retail services and practice groups at Colliers, the global real estate firm, said in her outlook report that as 2025 approaches, “the retail industry is navigating a complex landscape characterized by both growth opportunities and uncertainties.”
Solanki said the challenges include rising costs, evolving technological demands and geopolitical instability, “all while adapting to continuously shifting consumer behaviors and economic conditions.” She said retailers are focusing on strengthening their supply chains to be more flexible and transparent. “This includes using blockchain technology for better traceability and creating local manufacturing models to respond quickly to market changes,” Solanki said. “Despite tempered consumer optimism, advancements in technology and strategic operational adjustments are enabling retailers to remain resilient.”
The analyst said that while many retail segments are optimistic about overall growth, mass retailers and home goods merchants are more pessimistic. “This measured optimism stems from the ongoing hurdles affecting new development,” Solanki explained. “By the close of 2024, approximately 50 million square feet of new shopping center space will have been added in the U.S., an increase from 35 million in 2023, but still below the historical average of 61 million square feet per year from 2008 to 2020.”
She said high construction costs (stuck at 30 to 40 percent above pre-pandemic levels) make it difficult for projects to be financially viable — even in strong markets. “Rising labor and material expenses and overstretched project budgets impact profit margins,” Solanki said. “Even in markets with strong demand, these elevated costs can erode returns, making it harder for developers to justify new investments.”
From a broader economic perspective, Solanki said retail sales have remained in positive territory since at least 2020, “but the recent wave of inflation and subsequent tightening of monetary policies have started to take their toll.”
Last year retail spending growth was 3.4 percent, but will likely slow to 3.2 percent this year and then drop to 3.1 percent in 2025. “This gradual slowdown reflects a stabilizing retail landscape following the post-pandemic consumer activity surge, fueled by pent-up demand and unprecedented spending levels,” Solanki said. “Despite moderating inflation, consumers are becoming more selective in their purchases. This shift signals a move toward a more sustainable pace of growth, marked by cautious consumer behavior, more balanced supply chains and market dynamics that prioritize essential and value-oriented spending over discretionary items.”
David Barker, president of productivity solutions and services at Honeywell, said in his 2025 outlook report that AI is an industry game-changer and can help offset a host of challenges. “With AI increasingly moving from the back of the store to front-and-center, the technology is transforming retail operations, accelerating supply chains and impacting the customer experience, making holiday shopping smoother in-store and online,” he said.
For 2025, Barker sees a mandate for agile supply chains. “The most successful retailers will be those with agile supply chains capable of responding instantly to shifting market trends, seasonal demands and unforeseen disruptions,” he said. “Leveraging advancements in real-time data and AI-driven decision-making, these companies will seamlessly pivot between suppliers and logistics providers, effectively sidestepping bottlenecks, shortages and delays. This flexibility will no longer be a competitive advantage but a necessity for staying relevant in an increasingly dynamic market.”
Barker also sees AI playing a key role in retail success by empowering sales associates. “With fierce competition for labor and high expectations for customer service, retailers will increasingly look to technologies to make associates’ jobs easier that can enable them to serve customers most efficiently,” he noted. “Innovative solutions like augmented reality-enabled devices and AI-powered digital resources will empower workers to quickly answer shopper questions and find inventory easily.”
Barker said these technologies “will help meet evolving customer needs in a highly competitive market, reduce the time it takes for employees to get up-to-speed on the job and streamline operations.”
