As we cross the mid-year mark, the retail industry finds itself at a dynamic crossroads. The first half of 2025 has been a story of contrasts—balancing promising growth with economic headwinds and evolving consumer behaviors. To succeed in the second half of the year, retailers must understand the key forces shaping the market: year-to-date performance across sectors, the profound impact of consumer demographics, and the technological innovations that are redefining the shopping experience.
We all know that retail performance YTD has been a mixed landscape driven by a complex mix of influences. While the global retail market is on track to reach an estimated $35.2 trillion in 2025, the journey has not been without turbulence. Recent data from May and June showed a dip in U.S. retail sales, marking the third consecutive monthly decline and signaling a degree of consumer pullback.
Performance has varied significantly across key segments. The most notable performance change might be a more horizontal slow-down in e-commerce performance. E-commerce has remained a powerful engine of growth; however, the “easy” double digit growth available over the past decade is now running closer to 8%. Many retailers, including Target, are actually experiencing flat or negative growth rates in their e-commerce business.
In general, many retail segments have experienced a rollercoaster of performance for various reasons. The important thing to consider is how each brand will embrace change.
- Fashion and Apparel: The fashion industry faced a downturn in the first quarter of 2025, coupled with customer satisfaction scores that lag behind the retail average. In a strategic pivot toward sustainability and value, 153 U.S. fashion brands have now launched their own in-house resale channels.
- Automotive: The automotive segment shows a split narrative. While motor vehicle and parts dealers saw an overall sales decline of 3.5% in May, some luxury brands have thrived. Porsche, for example, celebrated its best half-year in U.S. history with an 11.4% sales increase over the first half of 2024.
- Grocery: The grocery sector continues its evolution, with online channels experiencing sustained momentum that is expected to continue through the year.
- Other Key Sectors: Building materials and garden supply stores have seen sales drop by 2.5 to 3% in recent months, while restaurants and bars experienced a modest around 1%.
One of the largest factors to consider regarding future retail performance is the consumer demographic impacts. Shopping behaviors in 2025 are deeply fragmented across generational, income, and gender lines, forcing retailers to tailor their strategies with greater precision.
The Generational Divides
- Gen Z and Millennials are now the primary drivers of growth. Gen Z’s spending is expanding at twice the rate of previous generations, and together with Millennials, they are expected to account for nearly half of all luxury goods sales by the end of 2025. This cohort lives online, with 67% of Millennials preferring e-commerce and 34% of young Americans making weekly purchases via social media. They are also values-driven; 64% of Gen Z will research a brand’s ethics and are willing to boycott those that don’t align with their principles.
- Gen X and Baby Boomers, in contrast, still show a strong preference for physical retail, with 72% of Baby Boomers favoring in-store shopping. This group is less engaged with social commerce and tends to frequent national chains, department stores, and hardware stores.
The Influence of Income and Value
Economic pressures have created a more discerning shopper. About three-quarters of consumers now identify as “denominator shoppers,” focusing primarily on paying less. This has fueled a widespread trade-down to discount retailers like Walmart and TJ Maxx, as well as an increase in the purchase of private-label products, a trend observed across all income levels, especially in the grocery aisle.
Technology Trends to Expect
There is one constant that every retailer must consider is their implementation of technology to drive future sales growth. For the remainder of 2025, technology will be the critical enabler for retailers seeking a competitive edge, as Gen-Z and Millennial shoppers demand it. The focus is on using innovation to enhance customer experiences, optimize operations, and drive profitability.
The Dominance of Artificial Intelligence
AI is no longer a futuristic concept but a core component of modern retail strategy.
- Hyper-personalization: AI allows retailers to analyze customer data to deliver the individualized experiences that 71% of shoppers now expect. Generative AI is being used to create dynamic marketing content and power sophisticated virtual assistants.
- Supply Chain Optimization: AI-powered forecasting can reduce inventory errors by up to 50%, preventing stockouts and overstocking by analyzing sales data, market trends, and economic indicators.
- AI Shopping Assistants: These AI agents are set to become more common, simplifying the consumer decision-making process by offering personalized recommendations and streamlining product comparisons. According to Salesforce, 75% of retailers will need AI agents in order to compete.
- Computer Vision: The utilization of existing cameras and deployment of new cameras is changing the total operation of stores. Vision is driving productivity improvements through inventory management solutions, improving loss prevention ROI and delivering new consumer engagement options like smart digital marketing.
- The Internet of Things (IoT): “Smart stores” are leveraging IoT devices to create a more responsive and efficient environment. Electronic shelf labels allow for dynamic pricing, while RFID tags and smart shelves provide real-time inventory tracking, freeing up staff to better assist customers.
While there may not be a clear view of retail performance for the remainder of 2025, there is a very clear path to long-term success: AI solutions. The consumer is not just accepting of the technology—they are expecting or even demanding it. Brands that align their value with consumer expectation and AI solutions will win this race to sales growth.
Brian Gallagher
Brian is the Retail Strategy & Business Development Director at Connection. Brian joined Connection in 2016 as the Retail subject matter expert (SME) after leading National Store Operations teams for more than 20 years. Brian has a deep understanding of today’s Store Experience and Customer Engagement solutions requirements and works collaboratively with customers and partners to create complete business solutions to drive customer engagement and revenues. Outside of work, he enjoys traveling with his wife and cheering on the Cleveland Indians.
