Artificial intelligence has become more prominent in the retail industry, and that trend will only accelerate in 2025. EMARKETER said the way retailers use the technology will become more sophisticated as they leverage both generative and predictive artificial intelligence.

Gen AI is artificial intelligence that can respond to prompts or requests with original content. Predictive AI can help forecast outcomes by recognizing patterns using statistical analysis and machine learning.

"By using the two technologies in tandem, businesses can make faster, more informed decisions," the report said. "They can unlock revenue growth by reducing customer churn, identifying new business opportunities, and forecasting demand — and they can improve profitability by identifying inefficiencies and optimizing operations."

Companies who can harness this technology will win with consumers, EMARKETER said.

The report predicts that companies will be able to make more accurate inventory and assortment planning, which will result in gains in product gross margin. It also says products will arrive on the market faster with less waste and fewer resources.

Several Chinese retailers have dug deep inroads with American consumers in recent years. Cheap products and bullish digital marketing helped brands like Shein, Temu, and TikTok Shop thrive.

Shein generated $2 billion in profits in 2023, while Temu's success helped creator Colin Huang become one of the richest men in China. PDD Holdings, Temu's parent company, said it made about $35 billion in revenues in 2023, a 90% increase from 2022. It's unclear how much TikTok Shop has generated since its 2023 launch, but the company said in its 2024 economic report that the app drove $15 billion in revenue for small businesses in the United States. A March Financial Times report, citing three sources, said TikTok Shop facilitated $16 billion in sales in the United States.

Americans are enamored with these brands, but obstacles lay ahead in 2025.

TikTok, for example, could be banned in the United States before the end of January. Congress passed a law in April that gave ByteDance, the Chinese company that owns TikTok, a January 19 deadline to divest the app or be removed from US app stores, citing security concerns. TikTok asked the US Supreme Court to block the law, arguing it violates the First Amendment rights of Americans who use the app. President-elect Donald Trump has suggested he opposes the ban, but what actions he would take is unclear.

The report said both Shein and Temu, meanwhile, have faced concerns over data privacy, product safety, and copyright infringement. At one point, Temu and Shein sued each other. Shein's parent company, Roadget Business Pte., Ltd., filed a lawsuit against Temu in 2023 that accused it of creating fake Twitter accounts using Shein's name and trademark. Temu later sued Shen, saying the fast-fashion company violated antitrust laws.

A Shein spokesperson said told BI that it "has robust data security policies and practices in line with industry standards, and we are committed to only collecting and using the minimum amount of data needed to fulfill orders. SHEIN stores U.S. customer data within Microsoft's U.S.-based Azure cloud-based solution and within AWS's U.S.-based cloud-based solution."

The spokesperson said Shein "takes product safety very seriously and is dedicated to providing customers with safe and reliable products."

These e-commerce stores also have to compete with powerhouse retailers in the United States, like Amazon, which launched its own Temu-like discount storefront called Haul in November.

Despite the hurdles, EMARKETER says the TikTok Shop will continue to grow, Shein's supply chain model will become more popular, and Temu could expand its offerings into low-cost groceries.

EMARKETER's report said the influx in new retail media networks — a type of advertising platform that lets retailers sell ad space on their channels to third-party brands — won't dent the share of ad spending allocated to Amazon and Walmart.

"Amazon and Walmart combined will gobble up more than 84% of all retail media ad spending in 2025, representing a pervasive and unyielding dominance within the channel," the report said. "The share of ad spending allocated to all other RMNs increased by less than 1 percentage point between 2019 and 2024. While the pie has grown nearly five times larger since 2019, it has also grown significantly more crowded, with more retailers competing for advertiser investment."

The report said most small and midsize retailers don't have a digital footprint big enough to create "meaningful revenues by monetizing their owned and operated digital channels."

"Many are branching into arenas that enable a more scaled reach, including off-site digital channels with the potential to tap into budgets typically reserved for upper-funnel awareness," the report said. "But success off-site or in-store requires a tough-to-stomach investment to fund capabilities, expertise, and technology."

As a result, EMARKETER said advertisers with fewer resources would likely consolidate their retail media network spending across fewer networks, and ad tech platforms would benefit from companies seeking solutions.

Retailers want to connect with consumers quickly and effectively, leading some to make their own exclusive content. Ulta Beauty launched a "gamified" loyalty program where users compete in in-app games for perks in 2023. That same year, fast food giant Chick-fil-A said it would create a family entertainment app dubbed PLAY to host video series and podcasts.

Companies like Starbucks and LVMH have also created production studios to deliver high-quality video content for their products.

"Many brands and retailers are also using entertainment content to bolster loyalty programs, drive app downloads, and boost engagement," the EMARKETER report said.

The report said more brands will start production studios in 2025 to create episodic content and daily games to engage with consumers. Streaming will be another method retailers will use.

"Brands and retailers will glean consumer insights to better target customers and then eventually sell advertising space around the content powered by first-party data," the report said.

Retailers in 2025 will try to make themselves valuable to consumers by partnering with other companies and offering well-rounded subscriptions. For instance, Walmart+ partnered with Paramount+ to allow certain members access to the streaming site. Similarly, Instacart+ members get access to NBCUniversal's streaming service, Peacock. Amazon Prime members can access Grubhub+ benefits for free.

The EMARKETER report says Walmart could partner with Uber to explore meal delivery and rideshare services. Additionally, quick-service restaurants will be the next frontier for retail partnerships.

"Walmart may expand its partnership with Burger King's parent company, Restaurant Brands International, to bring banners like Popeyes to its membership offerings," the report said. "Target could bolster its Circle 360 membership with Starbucks discounts, as there are already Starbucks Cafes in more than 1,700 Target locations."