- Intense restructuring underway to build leaner, more agile organizations
- Industry hesitant to invest in AI, leaving valuable potential untapped
- Asian online competitors gaining ground despite low product quality – partly due to waning consumer interest in sustainability
- 93% of executives confident in the future viability of brick-and-mortar retail
European retail companies expect to close fiscal year 2025 with a median EBIT margin of 5 percent.
This projection already factors in the anticipated impact of cost-cutting and efficiency initiatives, which remain high on the strategic agenda across industries in 2025. In response to ongoing cost pressures, many companies are also undertaking major restructuring efforts.
These findings are based on a recent survey conducted by management consultancy Horváth among senior executives in the retail sector.
When asked about their top management priorities for the year, retail CxOs cited cost optimization and digitalization as key focus areas. Compared to the previous year, several other strategic fields have also seen a marked increase in importance.
This suggests that companies are aiming to become leaner and more agile.
Reorganization has seen a sharp rise in strategic importance, jumping from ninth to second place in the ranking of management priorities. Business model adjustments climbed four spots to fourth place, while supply chain adaptations surged six positions – from eleventh to fifth.
“Whereas last year’s focus was primarily on financial and risk-related issues, as well as workforce strategies, the industry is now entering a phase of systematic transformation,” says Johannes Isensee, Partner and retail expert at Horváth. “Artificial intelligence is also playing a key role in this shift.”
AI Investment Still Lagging Behind
Despite the urgent need for structural reform and performance improvement, retailers remain cautious about investing in AI. While initial savings of around 8% in personnel costs – particularly in marketing, sales, and CRM – are expected through AI adoption, the actual potential is significantly higher.
“Not only internal staffing costs, but also expenses for external service providers and advertising could be reduced by at least the same margin – if companies commit to AI investment now,” predicts Isensee.
At the same time, 54% of respondents believe that business models, organizational structures, and processes will undergo radical transformation within the next two years due to increased AI deployment. Nevertheless, AI budgets remain low, averaging just 0.4% of total revenue. Given the sector’s high turnover and low margins, Isensee warns that digitalization – and especially AI implementation –may stall without adequate resource allocation.
Omnichannel as a Key to Success
For many retailers, omnichannel strategies offer a promising path forward. But true omnichannel is more than just “click & collect” or “ship-from-store” – it requires a holistic transformation of the operating model and organizational alignment.
The industry recognizes both the potential and the need for action: 81% of surveyed executives see further transformation required in areas such as governance, sales organization, logistics, IT systems, corporate culture, and employee skillsets.
Declining Sustainability Trend Fuels Asian Online Competition
Fast retailers like Temu and Shein – operating on a “manufacturer-to-consumer” model – continue to challenge traditional retail. These tech-driven platforms leverage fully digitized value chains to compete with established players.
“Even though product quality often falls short, these platforms remain attractive to price-sensitive consumers,” says Isensee. Seventy percent of surveyed retailers view Asian competitors as a serious threat to their market position, despite quality issues and anticipated regulatory changes.
This trend is also linked to declining consumer interest in sustainability. Two-thirds of executives report that sustainability is losing relevance – not only due to relaxed regulations, but also because customers are increasingly unwilling to pay a premium for sustainable products and materials.
Strong Confidence in Brick-and-Mortar Retail
Despite these challenges, 93% of respondents remain confident in the long-term viability of physical retail and urban shopping districts. Key success factors include enhancing the customer experience, improving advisory services, and fully integrating omnichannel capabilities. Structural conditions such as accessibility, fair rental prices, and taxation of online platforms like Amazon are also seen as critical to success.
Retail Management Priorities for 2025
(Compared to 2024)
- Cost optimization (unchanged)
- Reorganization of structures and processes (+7)
- Digitalization & AI (unchanged)
- Group strategy & business model optimization (+4)
- Production structure & supply chain optimization (+6)
- Pricing and revenue model adjustments (unchanged)
- Financial performance & risk management (-3)
- Liquidity improvement (-6)
- Cybersecurity (-2)
- Strategic HR topics (-5)
- Ecological orientation / sustainability (-1)
- Innovation and R&D (new priority)
- M&A and divestments (unchanged)
About the Study
The Horváth study “Management Priorities in Retail 2025” is based on in-depth interviews with over 40 senior executives from major retail companies, primarily in Germany. The survey was conducted as part of Horváth’s broader international CxO Priorities Study, which gathered insights from more than 1,000 top managers across industries in Q2 2025.
