Top Retail Industry Challenges for 2025
In recent years, the retail industry has had to navigate an evolving risk landscape. Shifts in consumer behavior, supply chain disruptions, labor shortages, and inflationary pressures have all impacted the sector. In 2025, several trends could further impact the retail landscape. These trends include growing cybersecurity threats, continued supply chain challenges, artificial intelligence (AI) and automation risks, and evolving physical security concerns.
Retail business leaders should monitor these developments closely and adjust their operations and risk management practices accordingly to safeguard their financial stability, preserve their reputations, and address ethical and legal considerations pertinent to their operations.
Increased Focus on Cybersecurity
As e-commerce grows, cybersecurity has become a rising concern in the retail industry. Point-of-sale systems, consumer-facing websites, mobile applications, increased reliance on digital payments and other software used in retail transactions hold a wide range of sensitive customer data (e.g., financial details and contact information), making them attractive targets for cybercriminals and various data-stealing schemes, including ransomware attacks. Additionally, insider threats—in which employees intentionally (e.g., retaliation against a company) or unintentionally (e.g., through a phishing attack) release secure data—remain a concern.
Cybersecurity events can have significant consequences. According to a 2024 report from IBM, the global average cost of a data breach in the retail sector was $3.48 million, up 18% from 2023. In addition to the financial impacts, these events can cause lasting reputational damage. Cyber incidents can erode the trust of vendors, customers, and the general public, and they can negatively affect employee morale and a company’s ability to attract and retain new talent. Furthermore, retail business leaders may be held accountable for their cybersecurity failures if they do not follow evolving data privacy regulations at the federal, state, and international levels.
Amid this evolving risk landscape, retail companies that don’t adopt effective cyber incident prevention and response measures could encounter serious consequences, such as lost or damaged technology and data, prolonged business disruptions, reputational erosion, stakeholder litigation, and significant penalties from regulators.
To mitigate these risks, retail businesses should implement strong cybersecurity measures, including advanced data protection protocols like multifactor authentication, encryption, and endpoint security. Regular software updates, network segmentation, and employee vetting can further strengthen defenses. Training employees on cybersecurity best practices and conducting routine penetration testing help identify vulnerabilities before they are exploited. Additionally, establishing a dedicated cyber incident response team, partnering with vendors that prioritize security, ensuring compliance with evolving data privacy laws, and securing adequate cyber insurance coverage can help retailers navigate the growing cyberthreat landscape.
Supply Chain Challenges
The retail industry continues to grapple with supply chain challenges for several reasons, including heightened demand for various goods, rising costs, and an increased reliance on global suppliers and just-in-time inventory systems. Further complicating matters are various international incidents, such as global port congestion, geopolitical tensions, extreme weather events, and labor shortages. Collectively, these issues have contributed to bottlenecks in the supply chain, leading to slowed shipment and delivery times for some high-demand products and materials.
Supply chain disruptions can severely impact a business’s profitability, consumer prices, and product availability. To reduce the impacts of supply chain risks, retailers should leverage automated technologies, predictive analytics, and real-time monitoring tools to track inventory and shipments. Diversifying suppliers, strengthening relationships with multiple vendors—especially domestic ones—and staying informed about market trends can enhance supply chain resilience.
Human rights issues are also a major concern in retailers’ global supply chains. Retailers must ensure they are procuring their materials and products through ethical suppliers free from situations that involve forced labor, child labor, or working conditions that are unsafe or violent. Retailers can help protect individuals who provide products for their businesses and safeguard their reputations by promoting supply chain transparency, developing relationships with trustworthy partners, and ensuring suppliers, manufacturers, and third-party vendors adhere to ethical practices.
AI and Automation Risks
The growth of AI and automation has revolutionized the retail industry. AI helps process data, enhance customer support, and manage inventory. Similarly, automation increases operational efficiency, improves customer experiences, and reduces costs. Overall, the use of technology continues to expand. As augmented reality (AR) and virtual reality (VR) alter customer experiences, 7 in 10 retail executives plan to use AI to personalize experiences in 2025, according to a survey conducted by Deloitte. Retail employers have also been incorporating AR and VR in their operations. For example, VR can be used to train employees in a digital setting; in fact, a survey from professional services firm PwC found that VR learners were four times faster to train than classroom learners. As technology progresses, consumers may increasingly be able to connect and engage with products in the digital world or shop virtually. This type of interaction has the potential to change customer experiences and allow retailers to grow their brands outside of the physical world.
Although these technologies offer many benefits, they come with risks. For example, AI technology operates based on human-generated algorithms and inputs, which means it may contain mistakes and biases. AI can also give rise to compliance risks as regulations evolve to address emerging technology and its uses. Additionally, automation can lead to customers’ frustration that they cannot interact with a person to resolve their issues, and employees may feel that this technology threatens their jobs.
To address these concerns, retailers should provide comprehensive employee training on new technologies and establish ethical guidelines for AI usage. Transparency regarding AI implementation, routine algorithm audits, and compliance reviews with legal counsel are essential for minimizing risks. Regular software updates and security measures can also help ensure AI and automation function reliably and securely.
Physical Security Concerns
Physical security is an issue across the retail sector, and a primary cause of safety concerns is violent behavior from shoplifters. According to the Council on Criminal Justice, shoplifting increased by 14% in 2024 compared to 2023. Moreover, a 2024 survey from the NRF found that 73% of respondents said shoplifters exhibited increased violence and aggression compared to the previous year. These actions place the safety of employees, clients, and others at risk.
Additionally, vandalism and organized retail crime (ORC) continue to be a significant concern. The National Retail Federation (NRF) describes ORC as a large-scale theft or fraud activity intended to convert illegally obtained merchandise into financial gain. Through this tactic, criminals steal goods off store shelves and resell them to unsuspecting online shoppers at reduced prices. They may also try to return them to the store fraudulently. Some criminals may infiltrate retail companies’ supply chains and steal merchandise before it reaches store shelves to redistribute these items on the black market. ORC impacts physical security and can compromise the safety of personnel.
To improve security, retailers should train employees to detect theft and respond safely, maintain adequate staffing levels, and conduct pre-employment background checks to prevent internal theft. In-store surveillance, AI-driven monitoring systems, and security cameras can deter crime, while access controls help secure high-value merchandise. Employers can further enhance safety by strengthening partnerships with law enforcement, using impact-resistant materials to prevent vandalism, and engaging with the community through business watch programs. Implementing fraud prevention policies, such as stricter return procedures, can help curb retail crime.
By monitoring these trends, responding appropriately, and mitigating their associated exposures, retail businesses can effectively position themselves to maintain long-term growth and operational success.
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This Risk Insights is not intended to be exhaustive nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel oran insurance professional for appropriate advice. © 2025 Zywave, Inc. All rights reserved.