European trading companies expect a median EBIT margin of five percent for 2025. A sobering perspective that already takes into account all the planned cost reduction and efficiency measures. While the industry is hectically reorganizing, adapting business models and restructuring supply chains, the greatest leverage potential remains largely unused: artificial intelligence.
The Horváth study “Management Priorities in Retail 2025”, for which over 40 board members and managing directors of well-known European retail companies were surveyed, shows a paradox. Reorganization topics jumped from 9th to 2nd place in the priority ranking, while business model adjustments climbed four places to 4th place. The industry is deep in the process of systematic transformation, but there is a lack of courage when it comes to the crucial tool.
Despite radical expectations, the AI budget remains minimal
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The AI budget remains at just 0.4 percent of total sales. At the same time, 54 percent of the managers surveyed expect business models, structures and processes to radically change as a result of AI within the next two years. This discrepancy between expectations and willingness to invest could have fatal consequences.
The first savings through the use of AI are already becoming visible: an average of eight percent in personnel costs in marketing, sales and CRM. However, Johannes Isensee, partner and trading expert at Horváth, warns that the actual potential is significantly higher. Not only internal personnel costs, but also service provider and advertising costs could fall at least by the same amount if consistent investments are made now.
Chinese competition is taking advantage of sustainability fatigue
70 percent of the retailers surveyed consider Asian platforms such as Temu and Shein to be critical for their own competitive position, despite their quality deficits. These tech companies compete against established trading models with fully digitalized value chains. Chinese e-commerce companies are strong in tactical pricing, personalization and digital responsiveness.
The trend is fueled by a declining interest in sustainability. Two thirds of company managers say that sustainability is becoming less important not only because of relaxed regulations, but above all because of customers’ declining willingness to pay for sustainable production. Price-conscious customers find Temu and Shein an attractive alternative, while European retailers can hardly lower their prices.
Omnichannel fails due to a lack of transformation
81 percent of the managers surveyed see a need for further transformation in omnichannel in terms of control, sales organization, logistics, IT systems as well as corporate culture and employee skills. An omnichannel strategy is more than just “Click & Collect” or “Ship-from-Store”. It is a holistic transformation of the operating model that only works when the organization is aligned accordingly.
The industry has recognized the potential, but implementation remains inadequate. While retailers are restructuring their organizational structures, there is a lack of consistent integration of sales channels. The result is isolated island solutions instead of consistent customer journeys.
Stationary retail as a hope for the future
93 percent of the retailers surveyed are convinced of the future viability of stationary retail and city centers. From the perspective of the study participants, the focus on the purchasing experience, the quality of advice and consistent omnichannel integration are critical to success. Structural framework conditions such as good accessibility, fair rental prices and the taxation of online platforms such as Amazon are also cited as crucial factors for success.
The belief in brick-and-mortar retail is understandable, but it should not obscure the fact that digital transformation must be pushed forward in parallel. Anyone who relies on the inner cities but neglects the technological infrastructure will lose both worlds.
Conclusion: Without clean processes, AI potential is wasted
The study reveals a fundamental misunderstanding in trading strategy. In view of high sales and low margins, Isensee warns of the danger that digitalization and especially AI implementation will not be promoted with the necessary resources. Companies are restructuring intensively, but the crucial question remains: Are they optimizing the right things?
The same applies here: Anyone who digitizes a bad process will end up with a bad digital process. The current reorganization measures could create the necessary basis for a successful AI implementation if they are consistently aligned with the requirements of data-driven systems. AI potential only increases with clean, standardized processes and high-quality data. The problem: With an AI budget of 0.4 percent of sales, it is questionable whether the restructuring is even carried out with a view to later AI integration.
Chinese competition shows how digitalized value chains work. European retailers must understand that restructuring and digitalization are not an either/or question, but must necessarily go hand in hand. Anyone who restructures today without thinking about the technological requirements of tomorrow is wasting resources twice: once on the restructuring and later again on the subsequent adaptation to AI systems.
