Retail Pulse Report: A peek into 2025 trends, a GenAI takedown, and TikTok’s inflection point
Get ready for passive shopping, the next generation of supply chain disruptions, and the return of recombinant innovation.
Program Notes:
This will be the last weekly Pulse of the year. We’re in the eye of the hurricane now for the holiday season, so not much to really do except wait for it to pass and see whether any damage was done
But fear not! I will still publish two more pieces before the end of the year, so if you’re not a regular subscriber, I definitely recommend that you sign up now. The pulse part will always be free and weekly, as long as I am able to sustain it.
The first of the two not-pulse pieces will come on Monday 12/23 and will build on the original promise of this newsletter – exploring the importance of IT strategy in retail. I’ll kick that off with “What does the Retail CIO need to know about customers?”
The second will come Monday 12/30 and will be my year-end review. With every article I write, I end it with “what did we learn this week?” and now it’s time to ask “what did we learn in 2024?” This will also be the prelude to my retail trends forecast for 2025. With NRF in the way, I probably won’t have that ready for publication until towards the end of January, but that’s another one you won’t want to miss!
Adobe’s AI generated take on “eye of the retail hurricane” (I actually had to try harder than that to get this image).
Except for the “oh crap, we forgot the dog sitter” shopping, I spent this weekend finally checking off my shopping list. I’ve been asked a couple times if the shorter holiday season would mean “the lull” – the drop-off that happens around the second week of December – would get skipped over, and after my trip to Target, the mall, Michaels, and the local liquor store, I can say that the lull does not appear to have happened. Not only were shoppers out in force, there were all kinds of shopping bags around, and people entering the cranky “get out of my way so I can be done with this” phase.
That said, I also noted deeper discounts than I would expect to see at this point – 40-50% off the entire store kinds of discounts. It was working, apparently. And falling costs are such that it’s actually hard to tell if these discounts are planned or at least within budget, versus the “inventory is not moving like it should” discounts that can pop up during the lull.
Overall, consumer confidence and inflation are cooperating to avoid any big hits right before the holidays. And while discount-seeking consumers are exhibiting even more stresses than ever, they’re also still shopping. I haven’t seen anything yet that will do better than slightly better than the forecasts for the season.
Retail Tech & Research Data: Retail in 2025
That means it’s time to turn our attention to 2025. Some predictions are already out, and of course that is all fodder for my own point of view. So here are a few stories that are looking ahead to the next year that caught my eye.
First up, Ricky Choi, the CEO of Outerspace (a logistics provider), put out an interesting article. The premise was “how to turn viral moments into lasting consumer loyalty” which was what got me to click, but what kept me was this:
“…[W]hile fast shipping remains important, it’s no longer a chief differentiator. On average, shoppers say they’re willing to wait five to seven business days for non-essential items like home decor, jewelry and apparel. …Speed isn’t everything anymore. What matters more to younger consumers is getting the right product delivered through the right experience."
And this:
“The old model of brand trust is giving way to product-based loyalty, where consumers return not because of the brand name but because of the product’s quality or the associated experience."
I’ve been saying for a long time that the primary reason why the store has struggled is because the consumer trust equation has fundamentally changed. Consumers used to select the retailer (the store) first, and then choose what to buy once they got there. Basically, when the store was the only place you could get things, then you went to the store that had the best chance of offering you the best selection, and took your chances with the selection that they had on the shelf.
Now consumers choose what they want to buy, and then they figure out who to buy it from. What Choi is saying is one step farther – with influencers and social media chucking algorithm-driven product options into consumers’ feeds, they don’t even need to know what brand of product they’re buying, what’s more important is who recommended it. And it matters less how quickly you get it – that’s especially important for other trends like more conscious consumption – but rather if it’s something that, you know, brings you joy and fits into your lifestyle (and your budget).
This could have some very interesting implications for retail in 2025, especially as Amazon and Walmart both are leaning into Christmas Eve shipping cutoffs based on owning their own logistics – have they perfected speedy delivery right when consumers no longer care?
From a supply chain perspective, some predictions include more supply chain disruptions. My first reaction was to dismiss – from a post-pandemic perspective, supply chain disruption is well behind us. But like ripples in a pond, disruption elsewhere keeps supply chain top of mind for future disruption. Between port strikes – which are not at all behind us – and the potential for tariffs as well as on-going work to shift product around to minimize the impact of tariffs, there is still a lot of potential disruption on the horizon, and a lot of risk for retailers and manufacturers to manage in 2025.
Additional trends raised: AI as co-pilot, predicting more focus on enhancing employees in future, rather than replacing them. As well as the rise of automated delivery, including increasing use of drones.
Werner Vogels, the CTO of Amazon.com, called out some odd predictions. I really feel like these are trends or advancements designed to deflect from the negative. GenAI consumes a lot of power and still doesn’t have anywhere near an ROI (and is even potentially driving companies to walk back sustainability goals because of the water and power consumption). You’re concerned about that? Fear not! At least it will also unleash a surge of innovation around energy efficiency!
Concerned about the rapid spread of misinformation and how much it can shape consumer perceptions, attitudes and even voting habits? Fear not! It will also "democratize investigative capabilities" "accelerate fact-checking" and "begin to close the gap between the spread of misinformation and its debunking". And especially don’t worry, because intention-driven tech devices are on the way to help ensure that consumers reach their goals for mindfulness and intentionality (vs. more eyeballs on endless scrolling).
As I said, these sound less like trends and more like defenses of terrible things by pointing to potential silver linings (without any evidence that Amazon is itself investing in any of these silver linings).
AI & Retail
Hoo boy, if you think my commentary is spicy, just wait until you catch up on what some of the GenAI generalists are saying lately. I don’t know all these players well, but apparently Casey Newton, a tech writer, wrote an article that stirred a hornet’s nest of response. I liked another tech writer’s takedown (Edward Ongweso Jr), I thought it explained my own discomfort with the logic as I was reading Newton’s piece, but in that screed, found this (I left the hyperlinks in on purpose):
“Ed Zitron’s dogged analysis of OpenAI's financials is worth considering: he argues that the company is not only unprofitable and unsustainable and untenable in its current form, but would also need to massively expand its revenue, massively cut costs that have only grown, pursue massive price hikes, realize a significant technological breakthrough in the form of an exponentially better model that costs less to train, and continue to sustain explosive growth that’s already stumbling.”
I just fielded a question from a reporter that basically went “Now that GenAI is done in retail, what’s next?” which was a bit of spit-take moment for me. The GenAI moment is hardly done – it has barely begun! And no one is paying the true cost of GenAI, and won’t until the music stops and a lot of people discover that there aren’t enough chairs.
My company is in the early stages of rolling out Copilot and yes, it’s useful and interesting. It’s pretty good for $20 per month per end user. Is it worth $200 a month? That’s a tougher question. And an even tougher question if we’re talking more like $2,000 per month in order to just break even.
Retail Winners and Losers
With barriers to banning TikTok in the US falling one by one, more than one analyst or retail tech reporter has asked if the company is emerging as an e-Commerce heavyweight just in time to be get forced out of the US. TikTok Shop reports that it took in over $100M in sales on Black Friday weekend, with fashion, beauty, “lifestyle products” all taking advantage of the channel. TikTok is also expected to double its sales in 2024, to hit $50 billion in gross market value. The company promoted its 30,000 livestreams through the weekend, with some creators grossing “millions of dollars in revenue”, though I still have to ask, is it really livestream shopping or is it basically more like shoppable ads? Or maybe live shoppable ads?
At the same time, Amazon relaunched its Amazon Fresh brand with a revamped location, which Nicole Silberstein visited. She had some great insights into what has challenged Amazon in grocery before:
“Balancing its signature innovation impulse with the expectations of customers in a needs-based category has been one of Amazon’s biggest stumbling blocks with grocery. "
And:
“its biggest challenge in grocery so far has been not turning customers off with too much newness in a shopping experience that is primarily focused on necessities."
So how did the new Amazon Fresh fare? Better than before, but still with some work to do. The smart cart was more seamless and frictionless than others in the past, but pointed out that whole sections in produce and the meat department were empty or stocked with a single item just to fill the shelves.
Technology, I firmly believe, has the opportunity to transform the in-store experience. But all the tech in the world doesn’t matter if you can’t solve in-store execution. That’s not magic. It’s just hard work.
Store Innovations
Back to the reporter asking what’s next after GenAI, my reply basically centered on the idea of recombinant innovation. Retail is not really a bleeding edge adopter of any technology, but especially for technology that goes into stores. So you have that to contend with right off the bat. But also, a lot of times it’s not the first iteration of a technology that really makes it take off, or it’s more about how two established technologies come together in new and innovative ways that create the innovation.
That’s a long lead up for something pretty mundane, which is taking all those locked anti-theft cases and enabling customers who are logged into the mobile app to unlock them themselves. For as eye-rolly as it is to have to “improve the antitheft case unlocking experience”, it is actually good example of recombinant innovation, which is the kind that generally has the most impact in retail.
Retailer mobile apps have been around forever, and even though they haven’t been a prominent thing until post-pandemic labor crunches met high inflation and consumer opportunists, antitheft cases have also been around forever.
Combining the two creates a way to take something that stinks and at least turn it into less of a barrier, while also incentivizing consumers to do something that retailers have wanted for a long time: use the mobile app while identified, especially while in the store. For Walmart and CVS, the retailers running it, the log-in is key. And of course consumers are going to opt-in. This is right up there with TSA Pre-Check, of course you’re going to give away your privacy if it gives you convenience and speed.
I’m not sure what happens if you didn’t make sure the case relocks and then someone comes along and empties the case, so I guess from that perspective maybe buyer beware. And I’ll also point out another take on the same topic, which is also even more true: Get rid of the locked cases and hire more associates at those stores, and have those associates circulating as floaters and stockers. I agree – I think at a minimum a retailer should test the two side by side and see which one delivers better store performance. Because while an app unlocking a case increases convenience, it cannot possibly drive sales like a store associate can.
What Did We Learn This Week?
Some predictions are already out for 2025, and this idea of “passive shopping” driven by social media interactions and how that is combining with current economic factors to decrease the importance of both brand and speed of shipping definitely resonates with me. More supply chain disruption seems on the horizon – but of a different nature than the disruptions we’ve seen up until now.
GenAI is hardly “done” in retail. And while there are certainly productivity benefits that come from the tech, any ROI is a farce because no retailer is actually paying for the cost of what they’re using – and I’m not sure that’s going to change in 2025. It seems all the GenAI platforms are going for the crack cocaine method of adoption – get companies hooked on it, then jack up the price. Can they raise prices enough to recoup costs? I am skeptical.
But I do think for 2025, recombinant innovation (for all that it is difficult to say) will be a more dominant force again. Because it’s not just GenAI as tech that has the opportunity to transform retail, but how retailers and tech providers figure out how to use it to turbo-charge other tech. That process has barely started.