New Models will Change What it Means to be a Retailer 

By Malin Andree, Partner - Global Retail, EY

2024 has been a bumpy ride for retailers. Prices, and interest rates have remained stubbornly high. The post-pandemic rebound into physical stores has faded, pushing ecommerce back up the agenda and leading to the highest number of store closures since 2020 in key markets. In addition, newly elected governments across the world will shape new policies which will change tax and trade landscapes. 

Meanwhile, AI, especially Generative AI, has accelerated capabilities in personalization, customer services and business intelligence. Automation continues to improve efficiency. Fashion flagships have bucked the trend of store closures with openings from New York to New Delhi. Retail Media has come into its own as a growth driver, empowered by an ocean of customer data that can be scraped from multiple sources. The last time I looked the two largest companies in the world were retailers, despite the challenges thrown at them.  

As we look to the year ahead it would be easy to talk of transformational opportunities. These certainly exist as technology, supply chains and commercial operations continue to drive change for retailers. But a better watchword would be resilience. As inflation recedes, taxes and tariffs will bring new pressures. Improving economic growth will still be slow by historical standards and the threat of disruption to supply chains will not go away.  

For retailers in 2025, resilience will be a baseline expectation to maintain and grow their core business. This will mean focusing on operational excellence by applying automation and technology to improve areas such as customer experience, supply chains, warehousing and logistics. But as retailers strive for new revenue opportunities they will also develop and scale other business models to drive profitability, which could move them past being retailers: 

Retailers as marketing agencies – The excitement that has been growing behind retail media is now translating into a real opportunity as retailers deploy in-house capabilities and collaborate with media networks. This will accelerate as loyalty and point of sale data integrates with other touchpoints such as social media interaction. AI and Generative AI will drive and scale more relevant content. Meanwhile social and shoppable media will expand as sales and marketing channels to increase exposure to addressable audiences. Its little wonder that retail media ad spend is growing at double the rate of traditional ad spending with retail well placed to benefit from a boom in B2B services. 

Retailers as health providers – From pharmacy concessions to wellness-themed malls, opportunities to blur the boundaries between health and retail are well established, even if efforts have not always succeeded. As customers become more health-conscious retailers can increasingly support them as a trusted service provider. This will range from healthier product assortments to full-service healthcare models, but the sweet spot will lie somewhere in between. Grocers can pivot towards personalized nutrition, and sportswear retailers can guide customers in their fitness activities. Wearable technology and advances in nutritional science will make services more accessible, while the geographic footprint and customer data that retailers have access to will enable delivery at scale. If retailers can use loyalty data to recommend products, they can also use it to support healthier behaviors. 

Retailers as logistics providers – The digital promises made by marketplaces and platforms still need to be met in the physical world. Excess capacity in warehousing and logistics represents an idle asset that could be profitably deployed. This is pushing retailers to stop competing with third party sellers and, instead, generate value by hosting them in their own ecosystem, using inhouse capabilities and established partnership networks to deliver to customers. This generates value from B2B services and increases web traffic to retailers as the scope of their marketplace offering grows. 

These business models all demonstrate a shift from products to services. Other service-led models are making headway too, as subscriptions, rentals and repairs quietly make their way onto the shop floor. While many retailers have been testing circular business models, they have not yet reached a tipping point where retailers become repair and resell agents. But in the year ahead service models will continue to increase their share of margin as retailers build them into their core model. In the longer term this could reinvent what it means to be a retailer.