Five ways retailers can build reinvention & resilience

Diminishing consumer confidence, ongoing supply chain issues, pricing fluctuations and labor shortages are just some of the challenges retailers have faced in recent years. Now, their ability to adapt is once again, being put to the test, as they confront a new set of economic headwinds due to the fast-moving macroeconomic, policy and tariff landscape. 

That includes addressing significant margin pressures due to increased production costs from new tariffs on imported raw materials and finished goods, with anticipated price hikes ranging from 5% to 16% across key sectors such as apparel, home furnishings, beauty products and groceries. Reliance on imports within these categories could surpass 25% to 30%, further adding to the pressure.

Ripple effects

The prolonged inflationary pressure that led to price hikes in recent years have already pushed many consumers to the limit of what they can afford. Any further increases will likely see consumers adjust their spending further by trading down to lower cost alternatives or pulling back entirely. Retailers are caught between a rock and a hard place: they need to manage costs while maintaining a competitive edge. 

In this environment battening down the hatches and waiting for the headwinds to pass is not conducive to long-term success. Instead, resilience and adaptability should be at the top of every retailer’s agenda.

Now and next

That means being agile and ready to reset the business as the market changes. It’s not enough to cost cut and eliminate inefficiency, instead, retailers need to proactively prepare for fundamental shifts in demand, financial conditions, and global trade.

So where should time, resources, and investments be directed to enhance resilience? There are several key areas to consider:

1. Enterprise and financial resilience: It starts with investing in a digital core 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. 

   Scenario planning must be embedded throughout the organization, so that retailers can have rigorous
   insight into the full range of risks and opportunities they face in the near and long-term.

   This is about better understanding how the outlook might change, how it might affect performance across business lines, and developing flexible strategies that can adapt to various outcomes and be further fine-tuned if needed. 

   For example, if a supplier in one region faces a disruption, a retailer should have a plan in place to quickly switch to another supplier without missing a beat.

   
   2. Operational resilience: Next, retailers need to rethink how they manage their cost structure, network and logistics. This is where artificial intelligence (AI) and other advanced technologies such as generative AI (gen AI) and agentic AI can help in moving the needle.

   Imagine a virtual representation of your entire supply chain — a digital twin — that uses real-time data to test different response scenarios. This can help retailers identify potential issues, such as transportation delays or quality problems, and take proactive steps to address them before they escalate.

   AI can also optimize inventory management, ensuring that retailers have the right products in the right places at the right times, even as demand fluctuates. 

   Just look at how Lowe's is improving its seasonal demand forecasting using an AI-powered solution to boost its operational agility as well as its ability to quickly and accurately respond to fluctuations in customer and market demands. This will not help boost efficiencies by avoid overstocking and maintaining a lean, efficient supply chain, but will also help improve customer satisfaction by ensuring that popular items were always available to purchase.

   
   3. Commercial resilience: We’re already seeing discretionary spend slow, with many consumers looking for ways to make their budgets stretch further. For retailers that invest in understanding and catering to their needs, especially during tough economic times, consumers are more likely to reward them with their loyalty. 

   This is where hyper-personalization, micro-segmentation, and agentic AI are becoming increasingly important. Consider how a retailer might use AI to analyze a customer's purchase history and preferences, then offer a personalized discount on a product they are likely to buy. This not only optimizes spending but also enhances the effectiveness of brand offerings, building stronger connections and driving repeat business in the long run.

   
   4. People resilience: People are at the heart of any resilient organization. However, employee concerns about inflation, job insecurity, and labor market shifts are challenging morale and retention. The good news is that companies have a range of levers to build a more agile and resilient workforce. 

   Real-time sentiment monitoring can help identify employee stress points and emerging concerns early, allowing for targeted action to support well-being and productivity. Simplifying processes and embedding AI so that employees can work alongside advanced technologies through upskilling is vital. By empowering employees to thrive as conditions change, retailers can ensure that their workforce remains a competitive advantage.

   
   5. Technology resilience: The pace and breadth of change requires a technology infrastructure that is both adaptable and reliable. AI should play a central role, not just through automation but through the strategic deployment of technology and talent against the most critical opportunities and risks. That requires organizing cross-functional teams to align AI capabilities with strategic priorities.

   To keep technology systems running and ensure core operations remain secure, a robust cybersecurity strategy can protect against threats and maintain customer trust, which is essential in an era where data breaches can lead to significant reputational damage.

Ready for resilience

The retail industry has always been about navigating change. It's that ability to adapt and innovate that will be the true differentiator in the coming years. By turning these challenges into opportunities, and investing in resilience, retailers can not only weather the current storm but emerge stronger, more competitive, and better equipped to withstand future shocks.