Bain & Company: Six trends in the future of retail

Retailers are navigating a rapidly evolving landscape, with significant transformations expected in the next five to ten years. According to analysis by Bain & Company, the retail sector is poised for major disruption driven by shifting consumer behaviors, technological advancements, and economic pressures.

Though retailers today face a wide range of challenges – from tariffs and inflation to tech disruption – they must not lose sight of how the strategic landscape is changing over the long term. The big shifts gradually reshaping the industry are certain to continue and companies need to stay ahead of the curve.

According to research from Bain & Company, six trends are set to reshape the sector:

Automation will run the business

Soon, artificial intelligence (AI) and physical automation will handle almost every core retail process, from merchandising to pricing. This means many traditional retail skills will become common, and new entrants will be able to easily access the same expertise through off-the-shelf AI tools.

Retailers that do not embrace AI and automation tools will miss out on huge increases in efficiency and speed, potentially losing profit. Despite that, high quality talent will always be crucial for big decisions, strategy, product design, and customer experience, as well as for building and training AI.

AI shopping agents will impact customer loyalty

AI shopping agents will soon be able to research and buy goods for consumers without being asked, anticipating their needs. This convenience will be appealing to busy shoppers, but it poses a huge threat to retailers’ long-standing customer relationships.

These AI agents can make automated, brand-neutral decisions. Retailers need to plan for this now by rethinking how they attract shoppers, potentially by optimizing product information for AI agents or even developing their own.

AI shopping agents are still being developed, but Amazon has already released their version of this type of tool. The feature, called ‘Buy For Me’ allows AI to choose products directly from brand websites when they are not available on Amazon’s platform.

Value will become personal and contextual

While price will always be important, the definition of ‘value’ is expanding to include things like convenient delivery and timely product recommendations. New technologies make it possible for retailers to understand different shopping contexts and consumer needs, offering more personalized and relevant deals.

Hyper-personalization will become increasingly relevant. In the coming years, meeting a customer’s changing needs in real time will be as critical as competitive pricing. This requires excellent data and the ability to use it effectively.

Grocery stores will act more like consumer goods businesses

Private label products are gaining popularity, with nearly half of US and European grocery shoppers preferring these often lower cost options. If this trend continues, the line between grocery stores and consumer goods manufacturers will blur significantly.

Grocers could rely more on their exclusive private label brands than on traditional third-party goods. This shift offers opportunities for retailers to improve supply chain resilience and differentiate themselves with unique products, but it also requires carefully managing relationships with existing suppliers.

Less need for physical stores

Many non-food retailers have already closed their brick-and-mortar locations, a trend that is certain to continue. Even grocery stores, which have been opening new locations, may need to optimize their physical footprint. For example, US grocery markets could reduce retail space by about 10% and store count by 15% to return to peak productivity.

As e-commerce grows, remaining stores will evolve, perhaps becoming micro-fulfillment hubs. Retailers should consider radical scenarios, like substantial reductions in selling space, and be open to alternative uses for their properties.

Growth beyond borders

Retailers traditionally thrived on local scale, but that is no longer enough to fund the massive digital and data investments required today. They need absolute scale, like that achieved by giants Amazon and Carrefour, which allows for greater investment than smaller competitors.

Despite challenges in domestic consolidation and international trade, an uptick in cross-border mergers & acquisitions in retail could be witnessed to achieve this necessary scale, improve technology returns, and access new markets. Whether through mergers or alliances, scale will remain critical for retail success in the coming years.

Conclusion

The main takeaway from Bain & Company’s analysis is that retail is on the verge of significant transformation. Leadership teams at retail companies will need to make big decisions over the next decade. By staying on top of these various trends, retailers can not only survive but also shape a new era of retail excellence.