Executive Summary
Months of trade uncertainty and higher tariffs haven’t stopped US shoppers from adding to their carts throughout the year. Black Friday and Cyber Monday sales are likely to hit a new record this year but the US consumption engine has been resilient throughout the tariff uncertainty. Advance Census Bureau data show that retail and food service sales in September were 4.3% higher year-to-date, putting the industry on track for its best performance since 2022, with turnover up by +4% this year (vs. +3% in Europe). Frontloading before tariffs kicked in provided a strong head start, and the momentum did not falter as initially feared, supported by lower interest rates, solid jobs and contained inflation. More importantly, companies food & beverages, electronics and personal care chose to absorb tariff-related costs rather than passing them on to consumers, with margins deteriorating by 1-3%. Starting in Q3, prices have started rising gradually in toys, apparel and furniture, while they still remain limited in food and electronic goods. Meanwhile, rather than bring a flood of production back onshore, US companies are recalibrating their global footprint, expanding into strategically located, lower-cost markets to preserve competitiveness and hedge future trade risk while also reducing their exposure to China (US imports down -36% since April). In the toy and apparel industries, for example, demand is shifting from China to Vietnam and other Asian countries like Cambodia and Indonesia.
Nevertheless, cracks in the job market and widening income disparities could weigh on consumer optimism in 2026-2027. The outlook for US retail is brighter than feared, with resilient demand and limited tariff drag supporting a projected +3% rebound in retail sales in 2025 and steady gains through 2026–27 against the backdrop of ~2% US growth. Easier credit and fading tariff anxiety should help offset concerns about the revival of inflation, with consumer prices expected to remain near 3% next year. Yet, early job-market cracks and corporate streamlining costs pose risks, while widening income disparities emerge. Still, strength among higher-income consumers should continue to anchor overall retail performance.
In Europe, stronger economic conditions should support a spending catch-up Despite a softer Q3, European retail is set for a solid +4% gain in 2025, lifted by easing trade frictions, steadier local political landscapes and ongoing disinflation momentum. A firmer euro, looser credit and improving confidence should support broader economic growth of +1–1.5% in 2026–27. Households’ caution after the pandemic and energy shocks is expected to reduce progressively as purchasing power recovers from the 2022 inflation period. With savings elevated near 15%, a meaningful catch-up is in sight, pointing to a +3% rebound in 2026 and +4% in 2027.
Looking ahead, three trends will shape the future of retail: The rise of AI, Chinese marketplaces losing their edge and insolvencies nearing a peak in Europe. The AI push will spread further into the retail industry, reinforced by tariff pressures that make efficiency, cost management, logistics and sourcing strategies even more critical in today’s higher-cost environment. Beyond productivity gains, AI will strengthen customer retention and conversion throughout the shopping journey and enable retailers to better identify and anticipate customer needs, though this trend also comes with the risk of new entrants as major LLM platforms look to leverage retail as a growth engine to fund their capital-intensive R&D. Meanwhile, the penetration of Chinese marketplaces in the US and Europe is expected to decline amid tighter trade rules and the end of tax exemptions for low-value shipments. Yet, Chinese competitors may re-enter or reinforce their presence in these key markets through more conventional channels – countering competitors that are increasingly digital – by scaling via joint ventures or acquiring local players. Retail insolvencies are likely to continue rising as the sector remains in a deep post-Covid transformation phase marked by ecosystem consolidation, with tariffs representing only one additional obstacle. Nevertheless, we believe Europe may be nearing a peak, as suggested by a decline in insolvency trends in the UK over the past 12 months and early signs of deceleration in major markets such as France (-2% for the last 12 months) and Italy (-35% for the last three months as of October), where recent crises have fostered stronger resilience across the industry. In Germany, the uptrend continues (+14% over the last twelve months and +5% over the last three months as of August). This heterogeneity reflects different speeds of technological adaptation and competitive pressures, but the overarching message is clear: the shift toward more digital, automated and data-centric retailing continues to reshape the sector, and the insolvency landscape along with it.