Retail’s Path Forward Lies In Reinvention And Resilience

The retail industry is no stranger to disruption. Eroding consumer confidence, ongoing supply chain issues and labor shortages are just some of the many challenges retailers face on a daily basis. Now, they must once again confront a new set of headwinds due to the fast-moving macroeconomic, policy and tariff landscape.

The Stakes are High

The retail industry is facing significant margin pressures due to increased production costs from new tariffs on imported raw materials and finished goods.

Consider the anticipated price hikes ranging from 5% to 16% across key sectors such as apparel, home furnishings, beauty products, and groceries. Then there’s reliance on imports within these categories that could surpass 25% to 30%, making the retail sector particularly susceptible.

At the same time, rising prices on everyday essentials and discretionary goods are softening consumer sentiment. Retailers are paying close attention to demand and affordability, as many consumers are reaching the ceiling of what they can afford for day-to-day purchases. According to a National Retail Federation (NRF) survey conducted in early March, 46% of consumers reported they were stocking up on household appliances, clothing, and other items because they were worried that these items would become more expensive due to tariffs. This could explain why retail sales grew in March after two straight months of declines, according to figures released by the NRF.

Stockpiling essential goods before tariffs take effect to help manage short-term price increases is also something some retailers may consider. However, it can be costly and logistically challenging and can create inventory challenges and potential overstock situations that could harm the bottom line.

Then there’s the impact on global supply chains as retailers are being forced to reroute toward regions with higher costs, less scale and often longer lead times. The result? Operational friction, fulfilment risk, and a need to rebalance sourcing, inventory, and vendor strategies in a compressed timeline.

The Road Ahead Demands Resilience

How should retailers respond? In times like this, some may be tempted to batten down the hatches, control costs, and simply wait for the headwinds to pass. Others will be wary of passing costs to consumers and will instead, be looking to remain competitive on price. However, with margins already taking a significant hit, there’s a limit to how feasible these strategies are for the long term. In reality, the prolonged inflationary pressures that led to price hikes in recent years already saw consumers adjust their spending habits towards more affordable alternatives, as well as pull back discretionary spending.

Instead, resilience and adaptability should be at the top of every retail executive’s agenda. That means a focus on being more agile and able to rapidly and repeatedly reset the business as the market changes. And that can’t be achieved purely through cost cutting and eliminating inefficiency.

Rather, retailers need to move beyond merely reacting to change and toward proactively preparing for fundamental shifts in demand, financial conditions and global trade. That requires investing in a digital core—comprising of a strategic blend of technologies and practices including digital platforms, integrated data, AI and built-in security—capable of delivering agility and innovation, data and AI for differentiation, applications and platforms for accelerating growth, as well as next-gen experiences and optimized operations technology as a tool for resilience.

Focus and Prioritization are Key

But with so many economic, social and policy forces changing, the central question becomes: where to direct time, resources and investments on building resilience? There are several key areas to consider:

Enterprise and Financial Resilience:

It begins with rigorous insight into the full range of risks facing the company in the near and long-term, understanding how the outlook might change, and how it might affect performance across business lines.

Scenario planning, for example, needs to be embedded throughout the organization, so that retailers can move beyond merely reacting to change and toward proactively preparing for fundamental shifts in demand, financial conditions and global trade. This involves not only anticipating potential challenges but also developing flexible strategies that can adapt to various outcomes.

Operational Resilience

Next, retailers need to rethink how they manage their cost structure, network and logistics, as well as supplier relationships and sourcing strategies in order to maximize profitability and cash flow.

This is where harnessing advanced technologies such as generative AI (gen AI) can really make a difference. For example, making digital twins – virtual representations of machines, products, or processes – much more powerful than they already are. Using real-time data, digital twins can help retailers test different response scenarios without impacting the day-to-day operations of the real-world supply chain. They can then quickly identify potential issues, such as transportation delays, quality issues, or unforeseen shifts in demand, and take proactive steps to address them before they escalate.

Commercial Resilience

Despite the current economic challenges, this is a critical time for retailers to nurture and reinforce customer relationships by doubling down on marketing, brand building, and product development.

As discretionary spending tightens, people need help stretching their budgets further. This is where retailers will need to pay close attention to data and analytics and put in place a dynamic marketing and promotions plan—anchored around existing inventory—with highly customized messaging and offers targeted to the individual customer.

This is where hyper-personalization, micro-segmentation, and agentic AI developments will become increasingly important to optimize spending and enhance the effectiveness of brand offerings.

Longer term, this is an opportunity to build stronger connections and drive repeat business. And, in many ways, that connection starts with the way retailers communicate through their advertising and marketing campaigns. We all remember the emphasis retailers placed on being “in this together,” during the pandemic. Now, we’re seeing messaging around “doing everything we can to be affordable.”

People Resilience

People are at the heart of any resilient organization. But employee concerns about issues like inflation, job insecurity and labor market shifts challenge both morale and retention. This comes as almost half of retail works in the US are concerned about the impact of policy changes according to a survey from Resume Templates.

The good news is that companies have a range of levers to build a more agile and resilient workforce, including real-time sentiment monitoring to identify employee stress points and emerging concerns early, so that targeted action can be taken to support employee wellbeing, productivity and trust.

Simplifying processes and embedding AI so that employees can work alongside advanced technologies is essential. In fact, Accenture’s research has found that half of all retail working hours have the potential to be impacted by recent advances in AI — shifting the focus towards data-driven decision-making, customer engagement, and supervising AI tools and agents.

The catch? Only 27% of retail and consumer goods workers say they really understand the value of the technology according to Accenture’s latest Pulse of Change survey. It’s why it’s vital to continue focusing on upskilling, so people are empowered to thrive as conditions change in unpredictable ways.

Technology Resilience

The pace and breadth of change is creating opportunities for retailers of all sizes to steal a march on the competition. However, that requires a technology infrastructure that is both adaptable and reliable.

This is where AI should play a central role—not just through automation, but through the focused deployment of technology and talent against the most critical opportunities and risks the retailer is facing. This requires organizing cross-functional teams to align AI capabilities with strategic priorities, from adjusting logistics and procurement strategies in response to trade shifts to optimizing pricing and workforce deployment in real-time.

In times like this, cybersecurity is even more important to not only to keep retail technology systems running, but to ensure core operations remain secure, adaptive and strategically aligned.

Ready for Resilience

The retail industry is no stranger to navigating change. From fluctuating inventories, variable workforce requirements, and unpredictable consumer trends, they have had to prove time and again that they can adapt.

It is that ability to adapt and innovate that will be the true differentiator. By turning these challenges into opportunities, staying ahead of the curve and investing in resilience, retailers can not only weather the current storm but also emerge stronger, more competitive and with the ability to withstand future shocks.