Industry
Retail
Omnichannel CX and Intelligent Innovation – The Future of Retail
HIGHLIGHTS
- The convergence of sustained cost inflation, value-driven consumer behaviour, elevated retail crime, and a growing compliance burden is making the traditional 'manage through it' response less effective. Retailers looking at a return to pre-2022 trading conditions may be underestimating how much the operating context has changed.
- A growing differentiator between strong and weak retail performers is the speed with which they convert signals into commercial action alongside technology, data quality, and execution discipline. Retailers who can shorten the time between signal detection and operational response are better positioned to protect margin and respond to demand shifts while they still matter commercially.
- Sustainable growth in this environment requires four simultaneous shifts - rebuilding the margin architecture for a structurally higher-cost world, treating data-monetisation as a commercial capability rather than a digital initiative, elevating shrink to a board-level profit priority, and building decision speed as a measurable competitive asset.
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Volatility is becoming structural
Retail in the UK and across Europe appears to be moving beyond a short-term turbulent cycle into a more structurally pressured environment. Cost inflation, consumer behaviour, competitive intensity, retail crime, and regulatory obligations are all evolving at the same time.
As a result, the traditional response to volatility—absorbing costs, deferring investment, protecting cash, and waiting for conditions to stabilise—is producing diminishing returns in the face of persistent pressures. The organisations better positioned for this changing environment are increasingly those building for the conditions that exist, rather than the conditions they hope will return.
Structural pressures are proving persistent
The most consequential misreading of the current market is the assumption that present pressures are purely cyclical. Recent indicators across energy, labour, sourcing, consumer behaviour, and retail crime suggest a more persistent set of challenges.
UK non-domestic electricity prices remain materially above early-2021 levels, and energy continues to represent a meaningful cost exposure across store operations, cold-chain logistics, and automated fulfilment. Labour costs in core retail roles have been rising, influenced by minimum wage policy, competition for frontline labour, and post-Brexit changes in labour availability. Sourcing costs also carry persistent trade-policy friction - UK-EU regulatory divergence continues to impose administrative and customs complexity on European supply chains, while tariff uncertainty introduces further risk for retailers with global sourcing exposures.
Consumer behaviour is changing as well. Many of the value-seeking habits that intensified between 2022 and 2024 appear to be persisting, particularly among households still affected by higher housing, food, and energy costs. Private label continues to gain relevance across a growing number of categories while discount formats are attracting a broader customer base as value-conscious shopping becomes more mainstream.
Shrink adds another dimension and continues to pressure margins while incidents of violence and abuse against retail colleagues are increasing. At the same time, regulations such as the EU AI Act, CSRD, PPWR, and EUDR are moving from policy development to operational enforcement, increasing the need for stronger governance, traceability, and data-management capabilities.
In essence, these shifts should not be treated only as temporary responses to short-term financial stress but as an indication of a reset of consumer value expectations that need to be managed with greater precision.
Taken together, these pressures are reshaping the economics of retail. The issue is no longer how long they will last, but how effectively retailers can operate within them. |
Margin pressure is becoming harder to manage
The financial impact of these structural pressures is visible in the retail P&L records. Industry analysis points to margin pressure across European grocery from energy, labour, logistics, and elevated consumer value sensitivity. Working across retail transformation programmes we have observed several common recurring mechanisms of margin leakage. For example,
- Promotional programmes planned on demand, assuming that they may be several weeks out of date, can cannibalise full-price volume in ways that historical models do not always capture.
- Availability exceptions can trigger substitutions that erode basket value. Labour hours may remain aligned with tasks prioritised and established at the start of the week, rather than the actual exceptions that emerge during it.
- In case of inconsistent pricing and measuring of retail media campaigns, advertiser renewal can become harder because measurement credibility is central to budget confidence.
- Shrink losses are often absorbed as operational overhead rather than managed as a controllable commercial variable.
Each of these failure modes is individually manageable. However, the simultaneous occurrence, across an organisation with insufficient decision velocity to address them in time, can produce structurally lower margins than the strategic position of the business should generate.
The commercial window for pricing, promotion, and availability decisions is narrowing as demand signals, competitor moves, and operational exceptions change more frequently. For some trading decisions, weekly commercial cycles may no longer be fast enough to keep pace with market movements.
A growing differentiator between strong and weak retail performers is the speed with which they convert signals into commercial action. |
Four commercial imperatives for prolonged volatility
The retailers performing best amid prolonged volatility are not necessarily those facing fewer pressures. More often, they are the ones adapting their commercial, operational, and decision-making models to respond more effectively. Four imperatives are becoming increasingly important.
Broad-brush pricing and fixed promotional calendars cannot respond at the granularity or speed needed to address the current demand signals. Retailers seeking to outperform on gross margins increasingly need to strengthen their commercial model at three levels:
- Explicit value tiering (good/better/best) is designed to retain cost-sensitive consumers without sacrificing margin from less price-driven shoppers.
- Promotional design that uses AI-driven modelling to estimate cannibalisation, fulfilment strain, and supplier cost recovery before commitment.
- Governance that enables repricing of specific SKUs or store formats when competitive signals warrant it. The gap between what a pricing model recommends and when a commercial team can act on it is where margins can leak. Closing it is as much a governance challenge as a technology challenge.
Retail media is becoming a board-level commercial priority because it can offer attractive margin characteristics compared with core product trading, provided measurement and advertiser confidence remain strong.
Retailers building durable revenue from it are distinguishing themselves through commercial discipline, not technology alone. They define a product portfolio with consistent measurement methodology; standardise attribution and share it transparently with advertisers; connect campaign outcomes back into category and range decisions; and appoint a named P&L owner with accountability for revenue rather than activity.
IAB Europe’s 2025 retail media research highlights the need for shared standards, consistent measurement, and stronger collaboration across stakeholders. Retailers that cannot demonstrate incrementality risk weaker advertiser renewal, particularly as brands demand clearer evidence of return.
With losses from customer theft reaching record levels, shrink is a material P&L issue with direct board visibility.
The leadership challenge is to avoid the false trade-offs that have trapped many retailers: removing self-checkout or introducing blanket friction can damage throughput and the customer experience as much as uncontrolled loss margin loss.
The answer is friction-right intervention: targeted, AI-assisted detection at high-risk categories, time windows, and flagged exceptions while leaving the mainstream journey fast and undegraded.
The governance questions must be answered before the technology is deployed, including - who owns the alert queue, what is the intervention protocol, and how are false-positive rates managed?
A more targeted approach can help reduce loss while also supporting safer colleague interventions and limiting unnecessary customer friction.
The common thread across all three imperatives above is the speed at which decisions are made and executed.
Retailers that build a margin advantage in this environment are not necessarily deploying more sophisticated models than their competitors. They are closing the gap between signal and action faster.
Pricing adjustments that take days to reach the shelf may be based on demand conditions that have already moved. Availability exceptions that trigger a replenishment response the following week may already have driven substitution, customer frustration, and lost sales.
The decision-making cadence of many retail operating models was designed for a more stable environment. Building faster is not only a technology programme; it requires explicit decisions about who has authority to act, at what threshold, and with what accountability. |
Use Case - Dynamic pricing: From signal to action:
Dynamic pricing illustrates the shift from periodic decision-making to governed, always-on commercial response.
In traditional pricing models, teams often work through manual data collection, spreadsheet reconciliation, scenario modelling, committee review, and system updates before a price change reaches the market.
Agentic workflows can compress this cycle by orchestrating competitive intelligence, demand forecasting, financial analysis, scenario generation, approval routing, implementation, and post-decision monitoring in parallel.
The important leadership lesson is not the specific technology stack, but the operating-model pattern: low-risk decisions can be automated within policy guardrails; medium-risk decisions should be routed for review; and high-risk or unprecedented scenarios should require named human approval with transparent reasoning, confidence thresholds, audit trails, and alternative options.
This turns pricing from an episodic exercise into a governed signal-to-action capability that can protect margin while preserving human accountability. |
Accountability as an operating model
Retailers translating these imperatives into sustained commercial performance need one structural element that slower-moving peers often lack: a named owner for each commercial domain, measured on outcomes rather than activity.
Steering committees can create alignment, but faster execution usually requires named owners with clear authority, thresholds, and outcome accountability. This means a specific individual whose performance is tied to gross margin outcomes in a defined domain: gross margin from pricing, retail media revenue, shrink and colleague safety, availability and inventory turns, or sustainability and compliance data quality.
The Perceptive Retail™ framework operationalises this accountability structure by aligning domain ownership, decision rights, leading indicators, and performance measures across key commercial domains.
CxO performance metrics and weekly operational leading indicators
Domain |
CxO metric |
Weekly operational indicator |
Owner |
Margin & value |
Gross margin %; promo ROI; markdown efficiency |
Price index vs. competitors; cannibalisation rate; elasticity bands |
Chief Commercial Officer |
Availability |
On-shelf availability; inventory turns; waste |
Exception rate; forecast error; substitution rate |
Chief Supply Chain Officer |
Store & labour |
Sales per labour hour; service level |
Task-completion SLA; queue time; incident rate |
COO / Stores Director |
Shrink & safety |
Shrink %; violence/abuse incidence |
SCO exception rate; false alert rate; repeat-offender flags |
COO / Loss Prevention |
Retail media |
Media revenue; advertiser retention |
ROAS; attribution coverage; campaign pacing |
CMO / Retail Media Lead |
Sustainability |
CSRD completeness; packaging readiness |
Supplier evidence cycle time; audit findings trend |
CFO / Sustainability |
Ownership, Accountability, and Measurement
The EU AI Act introduces phased obligations, with key requirements becoming applicable over time, including transparency obligations as well as those relevant to high-risk AI systems.
Corporate Sustainability Reporting Directive (CSRD), Packaging and Packaging Waste Regulation (PPWR), and EU Deforestation Regulation (EUDR) similarly move compliance closer to operational data, product traceability, supplier evidence, and accountable governance. CSRD increases the need for data granularity and supplier evidence chains that are difficult and costly to assemble retrospectively. PPWR and EUDR require product-level traceability back to the sourcing origin for packaging materials and deforestation-regulated commodities.
Retailers treating each of these as a compliance overhead to be managed separately from commercial transformation risk, increasing cost, and fragmenting the governance structures they need to build anyway.
Those treating regulation as a forcing function, the external mandate that finally justifies the internal structural decisions that the business case already supports, are likely to move faster and build more durable capability. |
What comes next
The retailers who grow margin and share through this period will not be the ones who planned best for a stable environment. Instead, they will be the ones who built the fastest and most accountable response capability for an unstable one.
That requires rebuilding commercial architecture for a structurally higher-cost world, treating data monetisation as a commercial priority, elevating shrink to a board-level priority, and investing in decision speed as deliberately as in any other operational capability.
The bottom line The enabling technologies are increasingly available, and regulatory timelines are becoming clearer. That means how quickly leadership teams translate these pressures into accountable changes to the operating model will be the key differentiator. The advantage of moving earlier will compound, making it progressively harder for slower-moving peers to catch up. The competitive window is now open, but not indefinitely. |