The State of Retail in 2025: Challenges, Success Stories, and Strategies
The Retail Roller Coaster: Explore how the retail industry has navigated significant changes over the past five years, from pandemic disruptions to shifting consumer behaviors and economic challenges.
Current Challenges: Understand the pressing issues retailers face in 2025, including rising wages, supply chain instability, and inflation's impact on consumer confidence.
Success Stories: Learn from thriving retailers like Costco, Trader Joe's, and another that may surprise you, whose innovative strategies are bucking industry trends.
What Can We Do: Discover practical steps retail leaders can take to enhance customer engagement, streamline operations, and remain agile for change.
The U.S. retail industry has been on quite the roller coaster over the past five years. While there were already many challenges as we entered the 2020s, many companies had a handle on what they needed to do to remain profitable. Then the pandemic hit and the roller coaster began. Stores closed, requiring new ways of shopping, and consumer behavior shifted tremendously. Supply chain costs soared. In many cases, however, the industry bounced back in 2021 and 2022. Fueled by pent-up demand and extra funds from government stimulus programs, consumers eagerly returned to brick-and-mortar stores. At the same time, they took advantage of new omni-channel options, making shopping more convenient and enjoyable. Sales increased for many retailers. Then as we moved into 2023, things began to change. Stimulus money dried up, inflation was evident, and customers began to hunker down.
Current State
That brings us to today. The retail landscape is undergoing a dramatic transformation, marked by significant struggles for many established players. 2024 witnessed a wave of bankruptcies and store closures, painting a stark picture of the challenges facing the industry. From discount giants like Big Lots to iconic brands like Party City to apparel retailers like Express, a diverse range of companies sought bankruptcy protection. The list from 2024 is quite staggering. JOANN Fabrics, Conn’s Home Plus, The Body Shoppe, The Container Store, plus the parent company of Vitamin Shoppes and Pet Supplies Plus all filed for bankruptcy in the last year. Many of these will not recover, and we could see the brands as we know them today completely disappear. Party City announced that all of its stores would be closed by the spring of 2025.
Simultaneously, major chains such as Family Dollar, CVS, Walgreens, and Rite Aid shuttered hundreds of locations nationwide. This convergence of bankruptcies and closures underscores the profound shifts in consumer behavior, the relentless pressure of online competition, and broader economic uncertainties that are reshaping the future of retail. In 2024 alone, over 7,100 U.S. stores closed their doors, a staggering 69% increase from the previous year. Compounding these challenges, nearly 170,000 retail jobs were lost in the past year, a 42% spike that signals widespread restructuring and downsizing. Rising labor costs, driven by higher minimum wages and increased national insurance rates, have further strained retailers' finances. Additionally, escalating operational costs in logistics and supply chains have intensified the financial burden, leading many to reassess their business models.
Immediate Issues
As noted above, there are several factors that contribute to the immediate needs across the industry. How retailers address those will determine their future. What must be avoided is trying to do what has always been done when these obstacles appeared before.
Wages
Rising wages is not a unique or new challenge that businesses face. It is more pronounced now due to the need to increase minimum wages across much of the country. We could endlessly debate the right approach on minimum wage standards, but the range of minimum wages across the country is significant. There are still states and local areas that maintain a $7.25 minimum wage (the current federal minimum wage set in 2009). This can stretch up to more than $20.00 for large businesses in local areas of Washington state.[1] There will continue to be pressure on wages across the industry regardless of the state or locality. Again, this is not new. Trying to address wages by cutting payroll in stores will only increase the issues retailers face. We must find new approaches to how this can be better managed and solved.
Supply Chain Costs
Supply chain costs are likely to remain unstable for the foreseeable future. There is a lot of activity on the geopolitical side. World markets are rightfully concerned that transporting goods could become more difficult, and even require new routes that will add time and money into the equation. There are few quick fixes on the transportation side of this equation. As raw material costs continue to increase, the sourcing and manufacturing elements will also place pressure on overall costs that retailers will face in the future. Being smart about how and where you source products will become even more important. Anticipating trends, along with managing inventory levels and product assortment have historically been critical elements of any healthy retailer. Embracing new technologies and looking for innovative solutions will be the only way to protect against these factors compromising the total business.
Consumer Confidence and Inflation
Prices in stores remained low for a long time. Businesses were able to absorb those costs and prevent them from being passed along to consumers. But that did come at its own cost. There were times when productivity gains could be made to help offset those extra increases. Wage pressures weren’t as intense and the job pool was wide and full. That has changed. The ability to absorb added supply costs has disappeared, with the productivity card already played and no suitable remaining options on wages. How we view inflation and then translate that into a value for the customers will likely play a role in rebuilding some confidence in a given retailer's ability to connect with customers at the point of purchase.
Expense Side Management
Finally, the continued approach of simply trying to manage the expense side of the business must end. Most challenged retailers spend enormous energy to find ways to cut costs in order to balance out the P&L. Rent is a significant part of any P&L, but is far less controllable on a daily basis. Often, there are only two significant lines of the P&L that have a lot of dollars that can be controlled: marketing, and payroll. Those of us in the industry won’t be surprised by this, and we’ve all felt the effects. The customers have too. Compared to four or five years ago, stores are messy, maintenance (in every sense) is limited or deferred, and finding people to help find or explain items is challenging, if not impossible. All of these contribute to the downward spiral of managing only the expense side of things.
Most retailers have a sales problem. Too many respond by reducing marketing and slashing payroll. When you stop telling customers who you are and why they should shop you, and there’s no one to help those that do enter, people look for alternatives. Not all customers are looking for a self-serve business.
What Can We Do About It?
Many of these adjustments will need to occur at the strategic and executive levels of companies to make the sweeping changes that are needed. There are examples though of (well known) retailers that buck the trends and continue to thrive.These three are widely known brands and, at least one may be unexpected. However, there is a common thread between them that is emerging as something that others could follow suit on.
Two That Prove It Can be Done
Costco and Trader Joe’s continue to perform in multiple ways and are beloved brands with very loyal customers. They operate on opposite ends of the retail size spectrum. Costco stores are large in size, and rank 12th on the Fortune 500 list at more than $240 billion in annual sales. Trader Joe’s operates smaller stores, in the 15,000 square foot range, and is estimated to have annual sales of between $13-$15 billion. Yet both capture attention within the industry and are considered customer leaders.
How do a warehouse club and a small specialty grocer end up in the same comparison? Again, both have a strong customer loyalty factor at play. But perhaps the most common thing they have is the approach to merchandise. Both are very selective in the assortment they carry in their stores. They don’t try to be everything to everyone. Neither of these stores is where people would do all their weekly grocery or general merchandise shopping. Both take a localized approach to what they offer in stores. Yes, both have items that are carried across the country, but Costco and Trader Joe’s also have selections that are tailored to the local customer tastes and interests. That is becoming an important factor that may be underestimated in the retail space. And if not underestimated, difficult for many brands to execute at the same level these companies do.
Old Company, New Approach
One unexpected company that currently appears to be on track for a big retail comeback is Barnes & Noble. Most people figured this brand would be another casualty of the Amazon world. Books are easy to get on Amazon and that is where that company made its entry into retail in the late 90s. Now, Barnes & Noble just completed the opening of nearly sixty new stores last year with more to come this year. From RetailDive.com:
Barnes & Noble’s business is experiencing a comeback, driven by social media and word-of-mouth book recommendations. Shannon DeVito, senior director of books at Barnes & Noble, said the retailer looks forward to making curated recommendations and said that customers have responded “enthusiastically” to the launch of a free rewards program.
In 2024, the retailer opened more new bookstores in one year than it had in the entire decade of 2009 to 2019.
What have they identified as their differentiator?
Part of the bookseller’s overarching strategy, and what is taking the company into a period of growth, is handing the control of each location over to its local booksellers. [2]
Assortment Differences
Placing the product selection and merchandising strategies into the hands of the local leadership team is making a difference. Barnes & Noble was purchased and taken private by Elliott Management in 2019. They brought in James Daunt, an experienced leader in the bookselling space. He had successfully turned around a UK bookseller under similar circumstances earlier in the 2010s. Now he is applying his passion and experience to help rebuild a loved brand in the US. He values the knowledge of local trends and interests that the managers of the stores can bring. This creates a better connection with the customer, and enables an experience that is simply not available when purchasing on Amazon.
Certainly, in both Barnes & Noble and Trader’s Joe’s cases, the benefit of being a well run privately held company removes the constant pressure from external forces on how the company is run and what results they deliver. The ironic thing is, they both outperform almost all other retailers in their space (and overall). Both remain true to their identity and what the customer expects. They are not managing just the expense side of the business at the cost of the experience the customer has. Barnes & Noble is not looking to beat Amazon at the book game, they want to be a damn good local bookstore for the customers who come into their stores looking for their next great read.
None of these three companies seek to homogenize their business across the country. They intelligently look for efficiencies that can be leveraged across the country, but also allow for the regional and local ‘flavors’ to shine through. They rely on local and individual managers to make decisions to connect to the customers they are closest to. And it is paying off.
Actions You Can Take
Many of these strategies sound great, but are arguably not going to happen at a store or district level without a strategic shift at the executive level. That begs the question: what can I do locally to make a difference in performance for my store(s) and customers?
There are many things every local leader can do for the location or locations.
Customer Experience
Regardless of your payroll hours or dollars, the experience a customer has will be driven more by the expectation of the Store Manager than any other factor. If your standards for customer engagement are high, you’ve set clear expectations for what that looks like, then model that behavior…you’ll be further ahead than most right away. Smiling, friendly, helpful employees go a long way in making customers want to come back, even if there may not be enough of them.
Stretch Your Labor Dollars
Understandably, it is difficult to have any of these conversations without acknowledging that payroll is a factor. Retailers have cut far too deep and in non-strategic ways that have negatively impacted the overall business. There are numerous examples, from a customer perspective, where this is evident. It is easy to see the degradation in store standards across many brands, which is clearly a component of reduced labor hours.
But there are things store and district leaders can do. Understand the difference between hours and dollars. You can stretch payroll dollars further if you look at the work that needs to be performed and ensuring the best person, based on skill and wage, is completing that work. Having your highest paid person working on stocking shelves may not be the best use of your payroll dollars, unless they provide an exponential productivity level compared to others. Scheduling during your busiest hours with the people that can impact sales the most will buy you more payroll in the long run. Some assumptions are being made here, but intuitively, we know that this can happen. That doesn’t make it easy. I am not a fan of the old cliché of “schedule for the needs of the business”. There is so much more to it than that. However, at the core, that statement is accurate. It is just much harder to do well if you are not intentional about how you go about it. Effective scheduling is a factor, and it will make a difference.
Train and Support Your Team
This is as much about expectations setting as anything else, but your team needs to know how to do things as much, or more, than what to do. Training doesn’t have to be computer-based, videos to watch, or policies to read. Show them how you want it done. Invest time in observing and coaching. Provide feedback regularly. Hold them to your standards. These are true differentiators that will help grow sales in your store(s). It sounds easy, but we all know this is far more challenging than it sounds.
Maintain Your Store
There is a pattern here about clear expectations. Every day makes a difference. What you let slide one day will ultimately multiply over time. Walk into any retail store that looks like an explosion happened, and you know that it didn’t happen overnight. One missed recovery leads to another, and pretty soon, your store is on the ground. Maintain your standards every day. Details matter. Process is critical. Ensuring you have a solid foundation of the basics in place will go a long way in keeping things looking neat and organized. And that will lead to a better customer experience. It will take far fewer payroll hours to maintain everything each day, than to try to clean up and catch up when it gets to a really bad situation.
Where We Go From Here
The world of retail is a magical place. Unless someone works in the industry, people don’t have any idea what it takes to bring a shopping experience to life and try to support hundreds or thousands of customer needs every day. It is challenging, it is frustrating, and, yet, it is rewarding. The state of our industry at the beginning of 2025 is not great. There are pressures coming from every direction. However, it is not a lost cause. People still love to shop. They love to be around other people. They want to talk to people to get new ideas, opinions, and exposure to things they didn’t even know existed. That is the magic of retail stores. Yes, we need to continue to evolve offerings that allow customers to shop when, where, how, and what they want. Multichannel retailing is here for good. But how that is defined for each company in the industry must align to their specific customers. Sometimes customers will need to be in and out quickly. Other times, they want to engage with someone that can explain the difference between multiple products or how it will solve their specific need.
For those of us in this industry, we have so much to offer. It is a matter of continuing to learn what is most important to our customers right now, and being agile enough to shift with them when they decide things need to be different. Playing catch up in a time when things are always changing will never work. Flexibility and adaptability is a new currency for relevancy. While, staying true to your brand and what customers expect from your specific business is the way to win. Thinking more like Costco, Trader Joe’s, and Barnes & Noble in putting more decisions into the local managers' hands will help to stay ahead of the curve in customer trends. Companies now need to invest in those local leaders to show them how they can do that effectively and provide the tools necessary to bring it to fruition.
Summary
The retail industry in 2025 has faced more than its fair share of challenges, from the pandemic and inflation to changing consumer behaviors and economic uncertainty. Yet, there are clear examples of companies finding success by focusing on what truly matters. Retailers like Costco, Trader Joe’s, and Barnes & Noble show the power of customer loyalty, localized strategies, and trusting leadership at all levels.
Retail leaders have an opportunity to embrace these lessons and adapt to a new reality. By prioritizing a localized customer experience, thinking creatively about operations, and remaining true to your brand, stores can continue to thrive in a world of constant change. With flexibility, innovation, and a clear vision, there is a bright future ahead for those willing to do the work.
What ideas do you have adapt to thrive in the face of these current challenges? What are you seeing work in your stores or districts?
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2 https://www.retaildive.com/news/barnes-and-noble-washington-dc-georgetown-store-growth-strategy/733170/