2025 Lookahead: What to Expect in Retail

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One key story of the last four years is the resilient American consumer. Spending largely kept up despite inflation and its drag on consumer sentiment, though consumers increasingly sought out value through less expensive brands and stores. Retailers have been pressured to deliver lower cost goods through budget-friendly products and discounting, and that mandate shows no signs of slowing. The unfortunate reality is that consumers mentally have prices pegged to the pre-pandemic era, and cooling inflation hasn’t alleviated the feeling that we’re all getting ripped off. 

Looking ahead to 2025, these trends only look to continue. Inflation has cooled but prices aren’t going to go in reverse, and the incoming Trump administration’s proposed tariffs have the potential  to raise prices for consumers further. Value-oriented retailers and consumer brands are trapped in a race to the bottom, while a downturn in the luxury market shows signs that even wealthy consumers are reconsidering splurges. 

Retailers should expect consumers’ value-conscious behaviors to continue through 2025

Ever since the pandemic the consumer sentiment gap between high- and middle-income has widened. Higher incomes mean consumers are better able to absorb the turbulence of the last few years, from job market disruptions to the runaway inflation that helped precipitate President Trump’s second term. Middle- and low-income consumers instead have had to find ways to stretch their dollars further by trading down to lower cost stores and brands or deferring purchases. 

In the weeks after the election with major change afoot and president-elect Trump’s winning campaign promise to bring prices down top of mind, consumer optimism shot up across all income groups. This gain is primarily driven by a rise in consumers’ perception of future business conditions one and five years on the horizon, up 5.2 and 4.5 points from the week preceding election day, respectively. This shift shows great optimism from shoppers as they hope that the promised changes by the new administration will increase their buying power. In reality, some experts estimate that the new Trump administration’s tariff plan will increase retail prices for consumers, failing to alleviate the price pressures that led to this moment. Based on the historic impact of rising prices on consumer sentiment, this upward trend for lower- and middle- income groups likely won’t hold. 

Retailers should expect more of the same going forward assuming tariffs are enacted as promised: value-conscious consumers trading down and deferring large purchases. Passing the cost of tariffs on to consumers is inevitable. Industry winners will soften the blow through more budget-friendly product offerings and discounting, continuing a race to the bottom to lure price sensitive consumers. If brands like Shein and Temu maintain their de minimis tariff exemption they’ll continue to undercut American retailers on price, and the hollowing out of the middle in the retail sector will continue as middle-income sentiment more closely tracks that of lower-income shoppers. Targeted discounting via rewards programs can help preserve margins somewhat, but value-oriented retailers should brace for the “storm” forecasted by Trump campaign surrogates. 

Meanwhile, high income consumer sentiment should stay afloat, but isn’t without risk either. Ongoing cost increases will be painful and this cohort will show some price sensitivity around larger investments like luxury goods and appliances (maybe that old refrigerator can hang on a few more years), or they’ll make anticipated necessary upgrades now rather than waiting to see the real impact on prices. 

Gen Zers and millennials also show higher consumer sentiment than the rest of the U.S. population, and are historically stronger spenders. The key to this segment’s hearts and wallets? Make it fun and special. Young and high-income shoppers show keen interest in special brand-led shopping events, which create opportunities to tell brand stories and enhance differentiation. This is key to competing in an environment where everyone is bringing more scrutiny to their spending. Brands that inspire an entire lifestyle, not just products, have the cache to create consumer excitement more akin to Taylor Swift’s Eras Tour than browsing product shelves alone. Expensive products have to have the quality and longevity to justify the higher price point.

Deinfluencing trends and underconsumption core speak to the moment, but are not a meaningful threat for retailers

The recent deinfluencing and underconsumption trends might alarm some consumer brands, but aren’t going to sustain. This trend of waving shoppers off of products or reminding people to shop their own closets before buying new are social media reactions to the friction between the growing power of influencers and shopping haul posts amid alarm bells about consumers’ perceived reduction of personal buying power. “Deinfluencing” as a topic peaked in early 2022 before fading away, per Google trends data. “Underconsumption” rears its head around the start of every year and its drumbeat has gotten more frequent and stronger, peaking in summer 2024, but its influence still pales in comparison to Americans’ love of shopping. 

Consumers love a little treat, as a reward for surviving under the crushing weight of neoliberal capitalism. The fact is, the social media ecosystem and in particular influencers who promote products have enormous impact on product discovery and consumer trends. Micro trends run rampant on TikTok, which promote unhinged levels of consumption as shoppers buy the latest accessories to trick out their collection of Stanley tumblers. Among Gen Zers and millennials especially, influencers continue to have an enormous impact on product discovery. 

The real threat will be the risk of brands slashing marketing budgets in the face of increasing price pressure and lower consumer expenditures due to tariffs, meaning that investments in social marketing and influencer partnerships will have to prove strong ROI to continue. Micro influencers who command lower rates but maintain more authentic audience connections will continue to be a strong investment for brands. For monetized influencers themselves, increased competition for brands’ dollars will mean there’s no financial incentive to promote underconsumption core. 

The road ahead

Like social marketing, brands will have to take a microscope to all expenses. One key category ripe for scrutiny is retail tech. AI for the sake of AI, or shiny object syndrome, is over.  Instead, investments that clearly enhance product discovery and conversion, like improved search via computer vision, have a real role to play, as does personalization to better target discounts and offers in an effort to preserve margins. Fine-tuned customer understanding through the anticipated economic turbulence and loyalty investments are key to retail brands winning in 2025 and beyond.