Retail executives expect the industry to grow by mid-single digits on average in 2025, despite facing economic pressures, fragmented consumer behavior, and rising operational costs. The winners in this challenging landscape aren’t just weathering the storm—they’re using these headwinds as catalysts for innovation and competitive differentiation.

Medium-sized retailers operating 3-10 stores are uniquely positioned to capitalize on these changes. You have the agility that big-box retailers envy and the resources that small shops wish they had. But this sweet spot only matters if you focus your efforts on the strategies that are actually moving the needle in 2025.

Strategy 1: Diversify Revenue Through Beyond-Trade Ventures

With limited growth in traditional buying and selling, retailers need new revenue and profit streams. Bain estimates that in the next decade, beyond-trade ventures could contribute one-third of revenues and up to half of retail profits, making them critical for sustainable growth.

What are beyond-trade ventures? These are initiatives that leverage your existing assets—customer bases, data, infrastructure, and intellectual property—to extend beyond the standard retail model of buying and reselling goods.

Proven beyond-trade opportunities:

Data monetization: Anonymized customer shopping patterns can be valuable to suppliers for market research and product development. Retailers with strong foot traffic data are partnering with brands to provide insights on consumer behavior.

Marketplace expansion: Transform your store into a platform where local artisans or complementary businesses can sell products, taking a commission while expanding your offering without inventory risk.

Service integration: One mass merchant recently purchased a television and advertising platform, creating opportunities to garner consumer data, tailor advertising to individual households, and generate additional revenue through ad sales.

Private label development: Almost one in five consumer goods products in the United States are now private label, with U.S. market share increasing from 17.7% in 2019 to close to 19% by 2023. More than half of consumers (57%) believe private label brands offer above-average value.

Subscription and membership models: Create recurring revenue through exclusive member benefits, early access to products, or subscription boxes featuring curated selections.

Strategy 2: Harness AI for Competitive Advantage

Seven in 10 retail executives expect to have AI capabilities in place within the year to help personalize experiences. Retailers that offered gen AI tools like chatbots during Black Friday weekend noted a 15% better conversion rate.

AI applications delivering ROI:

Dynamic pricing optimization: AI-powered pricing solutions analyze competitor pricing, demand patterns, and inventory levels to optimize pricing in real-time, maximizing profitability while remaining competitive.

Inventory management: 6 in 10 retail buyers said that AI-enabled tools improved demand forecasting and inventory management in 2024. Advanced technologies such as RFID tracking, automated ordering systems, and precise demand forecasting are making lean inventories both practical and profitable.

Personalized customer experiences: Tools like Hello Retail and Dynamic Yield enable businesses to analyze customer data and deliver hyper-personalized offers. Retailers who implement personalization strategies see an average 20% increase in sales.

Chatbot customer service: AI chatbots can handle routine inquiries 24/7, freeing up staff for complex customer service issues while providing instant responses that improve customer satisfaction.

Implementation strategy: Start with one AI application where you have strong data and clear ROI metrics. Master that before expanding your AI toolkit.

Strategy 3: Master the Circular Economy Opportunity

The circular economy represents a significant revenue opportunity for retailers, extending profit margins beyond initial purchases while creating environmental benefits. The secondhand market is projected to double by 2026, reaching $82 billion—growing 11 times faster than traditional retail clothing sales.

Circular business models generating profit:

In-house resale programs: Companies including Levi’s, Zara, and Lululemon have added sections of their websites devoted to “second hand,” “pre-owned,” or “like new” merchandise. This appeals to Gen-Z consumers (who account for 40% of US consumers) and 64% are willing to pay more for environmentally sustainable products.

Repair and refurbishment services: Offer repair services for products you sell, creating ongoing customer relationships and additional revenue streams while reducing returns and waste.

Product take-back programs: Accept used products for credit toward new purchases, then refurbish and resell at different price points to capture multiple market segments.

Rental and subscription models: For higher-ticket items, offer rental options that can generate more revenue over time than single purchases.

Upcycling partnerships: Partner with local artisans to transform damaged or returned merchandise into new products, creating unique offerings while reducing waste costs.

Strategy 4: Optimize Omnichannel for Maximum Impact

Retail customers who engage across multiple channels spend an average of 4% more in-store and 10% more online than single-channel customers—directly impacting retailers’ bottom line.

Omnichannel strategies that drive results:

Unified inventory management: Implement systems that provide real-time inventory visibility across all channels, enabling buy-online-pickup-in-store, ship-from-store, and seamless returns.

Social commerce integration: 62% of Gen Z say they’re on TikTok daily, which has helped fuel a surge in TikTok Shop transactions in the United States—up 156% year over year in November 2024. Create shoppable content across social platforms.

Mobile-first approach: Ensure your mobile experience is optimized for both browsing and purchasing, as mobile commerce continues to dominate younger demographics.

Curbside and delivery optimization: This trend can help retailers drive increased delivery density and profitability in the omnichannel space, as stores invest more in these convenient services.

Data integration: Connect customer data across all touchpoints to create seamless, personalized experiences regardless of where customers interact with your brand.

Strategy 5: Implement Data-Driven Decision Making

Retailers with strong data strategies have outpaced their peers, achieving twice the revenue growth and four times the profitability growth from 2020 to 2023.

Essential data capabilities:

Customer analytics: Track customer lifetime value, purchase patterns, and preferences to inform inventory decisions and marketing strategies.

Predictive analytics: Use historical data to forecast demand, optimize staffing, and prevent stockouts or overstock situations.

Real-time performance monitoring: Implement dashboards that provide instant visibility into sales performance, inventory levels, and customer behavior across all channels.

A/B testing framework: Continuously test pricing strategies, product placements, and marketing messages to optimize performance based on data rather than assumptions.

Competitive intelligence: Monitor competitor pricing, promotions, and inventory levels to maintain competitive positioning.

Strategy 6: Focus on Cost Optimization Without Sacrificing Experience

2025 will see retailers continue to focus on driving down costs whilst optimizing margins, pricing and promotions together with working capital.

Smart cost optimization tactics:

Shared services implementation: Consolidate back-office functions across locations to reduce overhead while maintaining service quality.

Automation investments: Focus on automating repetitive tasks like inventory tracking, basic customer inquiries, and routine reporting.

Supply chain optimization: Retailers have again slimmed down their inventories, which not only saves on storage costs but also releases working capital that can be invested elsewhere.

Energy efficiency initiatives: Implement LED lighting, smart HVAC systems, and energy management tools to reduce operational costs while supporting sustainability goals.

Technology stack consolidation: Audit your technology tools to eliminate redundancies and negotiate better rates through consolidated vendors.

Implementation Framework: Start Smart, Scale Fast

Month 1-2: Foundation

Audit current data capabilities and identify gaps

Choose one AI application to pilot (recommend starting with inventory management or personalization)

Assess current omnichannel performance and identify biggest friction points

Month 3-4: Early Wins

Launch your first beyond-trade initiative (private label or marketplace testing)

Implement basic data analytics dashboard

Optimize your most profitable customer journey

Month 5-6: Scale What Works

Expand successful AI applications to additional areas

Launch circular economy pilot program

Enhance omnichannel capabilities based on early results

Ongoing: Measure and Optimize

Track ROI on all initiatives monthly

Adjust strategies based on performance data

Continuously test new approaches in controlled environments

The Competitive Advantage Mindset

The retailers thriving in 2025 share a common trait: they view economic challenges as opportunities for competitive differentiation. While competitors cut costs indiscriminately, smart retailers invest strategically in capabilities that create lasting advantages.

More than half (53%) of retail executives plan to make moderate-to-major investments in M&A in 2025. These acquisitions are part of a broader trend in which retailers seek to access additional points of the customer life cycle beyond core retail.

Success in 2025 feels like it will need bravery and boldness to cut through the noise and stand out from the crowd. The most progressive retailers continue to innovate and change to adapt to challenges and find new sources of growth and profit.

The question isn’t whether economic headwinds will continue—they will. The question is whether you’ll use them to build capabilities that competitors can’t easily replicate. The strategies outlined here aren’t just survival tactics; they’re the foundation for sustainable competitive advantage in the new retail landscape.

Start with the strategy that best aligns with your current strengths and market position. Master it, measure its impact, and then expand your capabilities systematically. The retailers who emerge stronger from 2025’s challenges will be those who acted decisively while others hesitated.

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