• by Sarah Mahoney , Staff Writer @mahoney_sarah, January 22, 2025

 
Lowe’s Style Studio is one example of exceptional personalization.

Following a punishing year for retailers, Deloitte’s forecast for the coming year anticipates rewards for companies that can pull off a strategic shift to personalization. But there are still plenty of obstacles to overcome before they get there. That strategy will require a new assessment of consumers, a better grasp of AI and omnichannel trends, and advanced operational insights.

The report notes the industry has been chasing the promise of personalization for years now, with a “micro” ideal based on data, AI, and advanced customer segmentation, resulting in product recommendations and targeted promotions.

“However, given the high transitional costs and headwinds of legacy systems and business models, the transformation has been easier said than done,” Deloitte says.

Part of the delay is slow growth, with retailers managing a compounded annual growth rate of 1.5% to 3.5%, depending on the sector -- meager compared to other industries.

Survey respondents were more optimistic about the year ahead, expecting growth in the mid-single digits.

“Retail sales are expected to continue to benefit from a growing economy,” writes Akrur Barua, Deloitte’s economist, in the report. “The U.S. has outpaced advanced economy peers in the post-pandemic recovery. We expect this to continue with real GDP rising by 2.8% in 2024 and by 2.4% in 2025.”

The first step, the report suggests, is a new appreciation for where consumers are, given the current economy. As inflation declines, consumers will benefit from rising wages, a strong labor market and lower borrowing costs. That happy scenario says retailers might benefit from a 3.1% jump in consumer spending this year.

A less rosy outlook is that the new administration will deliver on promised tariffs.

“A sharp tariff hike (60% on all goods from China, 20% on goods from all other trading partners) may result in a broader economic slowdown,” Deloitte notes, forcing the Fed to hike interest rates, causing consumer spending to fall.

But beyond those numbers, Deloitte reports that consumers aren’t happy about many things. “They’re delaying traditional milestones around marriage, family development, and home ownership, challenging conventional forecasting methods,” it says. “Layered on top of this complexity is a consumer who is agitated by spending more to get less.”

As a result, two-thirds of retailers anticipate people shopping more often but buying less as they tighten budgets to focus on necessities. And as shoppers value price over loyalty, retailers will have to scramble to keep their customers, with 80% of retailers anticipating price wars ahead.

Quickly adopting key trends, like AI and omnichannel tools, is also essential. Deloitte's research finds that retailers offering GenAI tools like chatbots during the Black Friday weekend had a 15% better conversation rate. And 70% of the retailers in its survey expect to have AI capabilities in place within the year.

Growth will also require stores to work harder at operational gains, including overcoming heavy tech debt, modernizing supply chains, and exploring new revenue streams, like retail media sales.