This story is from our 2025 Australian Retail Outlook. Download the full report here.
This will be a year of transformation, not slow and steady progress. Economic recovery, technology adoption and shifting consumer priorities will shape the future of Australian retail in 2025 and beyond. Businesses prioritising AI, sustainability and seamless customer experiences will thrive, while those resistant to change may struggle to survive.
A retail rollercoaster – challenges, innovations and the road ahead
Retail in Australia has always been a dynamic industry. However, 2024 has tested its resilience like never before. Inflationary pressures, shifting consumer behaviours and an evolving technological landscape have created a year full of uncertainty and opportunity.
Looking ahead to 2025, the key question is adaptation: will retailers evolve or be left behind? Let’s explore how businesses are adapting and what the future holds.
Recovery and consumer confidence
Despite a sluggish 2024, Australia’s economy is expected to grow by 2.1 per cent in 2025, driven by easing inflation and anticipated interest rate cuts. Retail sales are projected to rise as consumer confidence strengthens, especially in discretionary categories such as electronics and home furnishings.
Employment stability and improved wage growth will further bolster spending, enabling retailers to take advantage of the recovery. However, caution remains, with consumers still prioritising essentials over luxury spending.
Experts suggest that while discretionary spending is set to increase, a gradual return to travel and hospitality spending may redirect some consumer dollars away from retail, requiring businesses to refine their customer engagement strategies.
Consolidation, survival and the businesses that didn’t make it
Major mergers transformed the retail landscape in 2024. The $30 billion Chemist Warehouse-Sigma Pharmaceuticals deal and Myer’s acquisition of Premier Investments’ Apparel Brands – both officially approved by shareholders in January of this year – highlighted the drive for market dominance. Meanwhile, Woolworths broadened its digital presence and improved its supply chain strategy to address rising costs.
At the same time, retail insolvencies increased 14.2 per cent year on year in the six months to December 2024, according to the Australian Securities and Investments Commission (ASIC). Godfreys, A.BCH, Nique, Arnsdorf, Booktopia and Dion Lee were among the businesses that succumbed to financial pressures in the last calendar year.
Experts anticipate ongoing consolidation in 2025 as retailers concentrate on efficiency and scale, as evidenced by the closure of Mosaic Brands’ Katies, Rivers, Millers and Noni B businesses.
Retail analysts expect a greater emphasis on local manufacturing and supply chain diversification in response to global disruptions. Retailers investing in near-shoring and regional partnerships could gain a competitive edge by reducing future economic volatility.
The brands betting big on the future
While some retailers played it safe in 2024, others drove ahead with bold expansion strategies. Rebel’s flagship store in Melbourne redefined experiential shopping with interactive fitness zones and AR-powered fitting rooms, while Shein’s pop-up strategy explored physical retail demand. Analysts predict a 15 per cent increase in hybrid retail models that blend online and in-store experiences. The future belongs to those who innovate – who will take the helm?
Forward-thinking retailers are integrating personalised subscription services and community-driven retail experiences. Emerging trends indicate that brands with loyalty ecosystems, exclusive membership tiers and hyper-personalised offerings will experience higher consumer retention in 2025.
AI, automation and the new shopping experience
The digital revolution is accelerating, with AI-driven recommendations expected to influence 40 per cent of purchases by 2025. The adoption of augmented reality (AR) and virtual reality (VR) technologies in fashion and home retail is projected to grow by 20 per cent, enhancing product visualisation and consumer engagement.
Autonomous delivery systems and hyperlocal fulfilment centres are predicted to reduce logistics costs by 12 per cent, making same-day delivery a more viable standard service. However, privacy concerns regarding AI-driven shopping experiences are increasing, with consumers demanding greater transparency in how their data is used.
Meanwhile, recent advancements in AI-driven inventory forecasting and automated stock management will enhance supply chain efficiencies, reducing waste, optimising product availability and helping retailers maintain profitability in an increasingly competitive market.
Sustainability and ethical consumer expectations
Sustainability is no longer merely a trend; it has become an expectation. While 47 per cent of consumers prioritise ethically sourced products, only 11 per cent are prepared to pay a premium. Retailers must integrate sustainability into their business models without significantly raising costs. Brands such as Patagonia and RM Williams are at the forefront by investing in repair and resale offerings, aligning with the increasing demand for circular economy initiatives. Additionally, blockchain tracking for supply chain transparency is emerging as a crucial tool for retailers looking to boost consumer trust.
Energy-efficient store designs, carbon offset schemes and second-life product initiatives are also gaining prominence in 2025. Retailers that effectively communicate their sustainability impact are likely to foster stronger consumer loyalty.
How consumers will shop in 2025
Affordability remains a priority for 84 per cent of shoppers, but experience is becoming equally important. Spending on health and wellness surged by 8.8 per cent in 2024 and is expected to rise a further 10 per cent in 2025. Electronics and home furnishings are forecast to grow by 6 per cent, driven by increasing consumer confidence. Hybrid shopping – where online and in-store experiences seamlessly integrate – is becoming the norm, with 85 per cent of shoppers blending both channels. Retailers must balance value with expertise to remain relevant in the year ahead.
With price sensitivity remaining high, brands are broadening their “buy now, pay later” (BNPL) options and dynamic pricing strategies to appeal to budget-conscious consumers. They are also increasingly using hyper-personalised marketing – such as AI-curated discounts and tailored shopping experiences – as a key differentiator.
The retail wishlist: What consumers want in 2025
Consumers today expect greater convenience, flexibility and ethical practices. More than 55 per cent now demand same-day delivery as a standard service, while sustainability remains a crucial factor in purchasing decisions. However, only 11 per cent of shoppers are willing to pay more for eco-friendly products, meaning retailers must find ways to integrate sustainable practices without increasing costs.
AI-driven personalisation, seamless omnichannel experiences and transparent supply chains will shape customer loyalty in the years to come. Moreover, real-time product availability, ultra-fast checkout solutions and frictionless returns policies are set to become Australian consumers’ baseline expectations. Retailers that prioritise these capabilities will gain a clear competitive edge.
The road ahead – strategies for success in 2025
As Australia’s retail sector enters 2025, economic recovery, technology adoption and evolving consumer preferences will shape success. Retailers need to embrace AI, sustainability and omnichannel innovation while ensuring affordability and efficiency.
With GDP growth projected at 2.1 per cent and discretionary spending on the rise, businesses that focus on consumer-centric strategies will emerge stronger in the ever-changing market. Those that fail to innovate risk being left behind in the increasingly competitive retail landscape.
By effectively incorporating data-driven decision-making, hyper-personalisation and commitments to sustainability, retailers will be best placed for long-term growth.
The question is no longer whether transformation is necessary – it’s now about how swiftly businesses can adjust to tomorrow’s retail environment.
This story is from our 2025 Australian Retail Outlook. Download the full report here.
