Tech, trade and taxes: What’s impacting retail in 2025

Episode transcript, edited for clarity

[00:00:28] Bill Thorne: Welcome to Retail Gets Real, where we hear from retail's most fascinating leaders about the industry that impacts everyone, everywhere, every day. I'm Bill Thorne from the National Retail Federation, and on today's episode we're talking to Matthew Shay, president and CEO of the National Retail Federation. We're going to talk to Matt about the retail landscape and outlook for 2025 and the policy issues that will be important this year. Matthew Shay, welcome to Retail Gets Real.

[00:00:56] Matthew Shay: How are you?

[00:00:57] Bill Thorne: I'm well. How are you?

[00:00:59] Matthew Shay: Excellent. Happy New Year and thanks for the invitation. This might be my second or third visit with you.

[00:01:04] Bill Thorne: I think it's been more than that, to be honest with you. They're very popular, so we like to bring our popular guests back. So we've got a lot going on at the National Retail Federation because our retailers have a lot going on. Had the holidays, Thanksgiving, Christmas, Hanukkah, you name it. And then we had the Big Show in New York, over 40,000 exhibitors, plus. And so we got a good sense of how things are going, how things are looking. What should we be aware of, some of the things that they've been talking to you about as they prepare for 2025?

[00:01:40] Matthew Shay: It's the beginning of a new year. It's the beginning of a new administration. We're watching the evolution of the economy. I think to just go back a little bit, we had a really strong holiday season and a very strong 2024 holiday season. Retail sales grew by 4%, $995 billion. So I think we're on track to — hard to think about this — we'll do a trillion dollars or more next holiday season, which is amazing.

[00:02:04] Bill Thorne: Yeah, it is.

[00:02:04] Matthew Shay: And sales for the year were up by three and a half, 3.6% for the entire calendar year of 2024, which was five and a quarter trillion dollars. So enormous consumer activity, retailers meeting consumer needs, finding ways to serve them, delivering products, how and where they want them.

And I think the really interesting thing about the numbers is that in an environment where inflation is way down, but inflation on goods is negative, really, down to 3, 4, 5%, and even food inflation is flat to maybe 1%, so the three and a half percent growth over the year, or better than that, the 4% growth, that's real growth because it's a deflationary environment, which is pretty impressive.

So as we get into the 2025 calendar year, I think we're poised to continue to have another strong year, and we've got to navigate all these uncertainties. The big uncertainties, I think mostly are policy uncertainties with the new administration and what are they going to do on taxes. What are they going to do on immigration and workforce?

What are they going to do on trade relations? How's that going to impact cost of goods? How's it going to impact cost of labor? How's it going to impact household spending? How's it going to impact energy prices potentially? I think there are all sorts of things we don't know. How's it going to impact the housing market?

And then in that environment, what can the Federal Reserve do about interest rates? Are we going to continue to see the interest rate cuts that in 2023 and 2024, there were predictions we were going to see — five, six, seven rate cuts?

[00:03:40] Bill Thorne: Right.

[00:03:41] Matthew Shay: I think that ship sailed. So here we are now. Now the betting is we're going to get one or maybe two rate cuts this whole year, and interest rates are still relative to what we're used to. They're still pretty high. So that still has an impact on all those interest rate-sensitive segments of the economy, which is housing, construction and all those things. So I think consumers are in a good place.

Retailers are finding ways to be creative and adapt to the environment in the face of uncertainty because since the pandemic, I think that's the one thing we know, is uncertainty is always with us.

[00:04:12] Bill Thorne: Yeah. And too, I think post-pandemic, one of the things that we have found, and we've been talking about it for quite some time, is the resilient consumer, the smarter consumer. And I think that part of the success that the retailers have had is that they recognize that, and so they're keeping up with the consumer by offering them what they want, when they want it, where they want it, at the price that they want to pay. That's the only way you can drive that kind of growth, I would believe.

[00:04:37] Matthew Shay: Yeah, yeah. I think the notion of consumers being informed, having access to information about pricing, the transparency in the market, the ability to do search, and the ability to do comparison, that's almost old news now. I think consumers are much more sophisticated than historically has been the case.

And in this environment, they're being much more thoughtful and deliberate about purchases. And they're different categories of consumer, and sometimes even the same consumer defines value in different ways. And sometimes it's price, sometimes it's exclusivity, and sometimes it's service or convenience. And sometimes it's, we want to go to the store and have the experience, and sometimes it's, we want to have it delivered, and sometimes it's, we want to pick it up in the store even though we ordered it online.

There are all these permutations that didn't used to exist, and retailers have to anticipate multiplicity of variables about how consumers get engaged. And then having anticipated them, they need to predict when consumers want it a certain way and how to deliver it that way. So there's all this amazing transformation happening in the supply chain, in fulfillment and delivery, in the use of stores to create experiences.

Stores are places where you create experiences for consumers and customers, but you also use stores as fulfillment centers now and inventory management. It's this amazing mash-up that, a decade ago, even to the extent it was imagined, wasn't possible because the technology wasn't there to support it.

And because consumers didn't know that's what they needed and wanted yet. And the pandemic was when the technology existed in the environment. The external conditions were such that it forced the adoption of a lot of technological change and a lot of agility and a lot of resilience. And that was this crucible that retailers and consumers experienced together. And as a result, we had this step change in the way in which people experience retail today.

[00:06:40] Bill Thorne: Yeah. I always go back to the fact that I remember during the pandemic, and we'd be talking to some of the retail leaders, and they would talk about the fact that they would have an idea, how can we reach the consumer? How can we provide them what they need during this unprecedented time?

And they would take an idea — and something that would take months, if not years, to implement — they were doing in weeks, just to try it to see if this worked and to really help the consumer out. And I think the consumer then established an expectation. They will provide me with what I need because they know if they don't, I'll go somewhere else that does.

So the innovation's just through the roof. So let's talk about some retail trends. And I know that we're going to ultimately have to talk about AI, artificial intelligence. Everybody's talking about it. But some of the trends that you saw maybe at the Big Show or in talking with a number of the CEOs that you had time to spend time with during the Big Show, what are they looking at?

[00:07:38] Matthew Shay: Well, we can, and we should talk about it AI and how that's touching every aspect of the retail experience and will continue to. I think the technology that exists today can be applied in myriad ways to take friction out of the experience. And I think that from a retailer's perspective and from a customer's perspective, the thing that everyone is trying, even though they don't define it this way necessarily, is you're trying to remove friction.

You're trying to create as seamless an experience as possible. And the obvious ways are, OK, we went from two- to three-day delivery, to next-day delivery, to same-day delivery, to afternoon. You order it at lunch and you have it in two hours. So AI has a role to play there.

The supply chain, obviously, inventory management, predictive analytics. So that's just one example of lots of things coming together to create an experience to remove friction. But that approach is true in retail media and the way advertising's taken place on websites to draw eyeballs and set people up for purchases that they're going to make, or the way that we handle payments today, or the way that we handle fulfillment.

There's all these dimensions, each of which are being touched by technology and AI. I think one of the ones that we've seen before, we continue to see, is this technology where you can just walk into a store and walk out with something, the ultimate frictionless experience.

[00:09:06] Bill Thorne: Not shoplifting. We know that. But you're actually paying for it.

[00:09:09] Matthew Shay: Yeah. You just walk out.

[00:09:11] Bill Thorne: Yes.

[00:09:11] Matthew Shay: And so the use of, where you go to some stores and the embedded RFID tags in products for the ease of checkout continues to get as — the technology exists now to embed this even in fibers, RFID tags in a fiber in a piece of apparel. So some of those are the kinds of things that — I mentioned this a minute ago, but I just think stores in general are the unsung hero.

Ten years ago, people were saying stores are all going to be out of business. And remember, in 2016 and ‘17, every time we did a broadcast media or anything other, the store was retail Armageddon.

[00:09:50] Bill Thorne: Zombie malls, blah, blah, blah.

[00:09:51] Matthew Shay: Retail apocalypse. And stores are more important than ever now as a channel of engagement, as a channel of experiential retail, as a channel for fulfillment, delivery, inventory management. So that's the exciting thing about retail is because it's consumer-centric and consumer-driven, retailers are constantly pushing themselves and each other to find new ways to create the right consumer experience. And whether it's use of AI or whether it's reducing friction by having walkout stores or whether it's creating new store experiences, that's all part of what makes it such a dynamic industry.

[00:10:30] Bill Thorne: Yeah. We always say that if you don't like change, you won't like working in retail. Policy issues. Here we are at Washington, D.C. We have a brand-new president, except not so brand new. He's coming back. Then we have a new Congress, and it is a different makeup than we have had for a while. So what are the priorities of the National Retail Federation as it relates to policy issues that are important to not only our brands, but to consumers?

[00:11:02] Matthew Shay: I think at the highest possible level and just as one way of categorizing or the screen we put on policy proposals is, are they pro-growth? Will they create economic activity that tends to expand the economy and create an environment in which the economy is growing, consumers are recognizing the benefits of a growing economy, we're creating jobs, we're driving wage increases?

And so policies that tend to support growth in general, whether that's tax policies, workforce policies, trade policies, I think all of those we look at first from our perspective, do we think they're going to help create a more dynamic economy? Or conversely, are they going to be restrictive? Are they going to drive up costs? Are they going to introduce obstacles or challenges to growth in the economy?

So the biggest one, I think in the near term, is tax reform, extending the 2017 tax cuts. Lots of details in the tax bill of 2017, but I think the headline for retail was the reduction in the corporate rate from 35% to 21%.

[00:12:16] Bill Thorne: Yes. From the highest in the world to being competitive. Right?

[00:12:21] Matthew Shay: Much more competitive. So I think preserving the corporate rate and then ensuring that as other dimensions of the tax bill get adjusted or renewed, that we don't cancel out or take away the benefits of the lower corporate rate by doing things in other places that tend to increase costs for retailers and businesses.

So I think that's number one. Number two would be the whole category of workforce and labor. Immigration would be part of that, but labor regulations, the Department of Labor, the National Labor Relations Board. The retail industry is the largest private-sector employer of the United States.

More than 50 million people work in retail. More than one in four jobs, going on one in three jobs, are in one way or another connected to the retail industry. So anything that impacts the workforce impacts retail, and anything that impacts the employer base and the employee base generally impacts retail because employees are consumers.

And so I think it's double-edged. It's both. We're the largest employer, but it's because our customers are individuals and households and families as opposed to businesses. And we serve everyone everywhere, every day. So I think tax reform, labor and workforce issues, and then trade relations in general.

And there's been a lot of talk about tariffs, but elevating that. Tariffs are a derivative or a component of trade relations, and I think we recognize and believe we need to have strong, healthy, fair, balanced trade relationships. And that it's the president's job and the job of each and every administration to try to achieve the best possible trade deals for the United States as can be done so that we can create a pro-growth environment.

We're importing the right things. We're exporting to the right markets. We're creating jobs. We're increasing the standard of living and wages here in the U.S. So inside the whole conversation about trade relations, the president's got lots of tools at his disposal. Tariffs are one of the tools, and the president should use tariffs in a way that will protect critical American industries, infrastructure, defense, national security, AI, robotics.

There's a whole category of areas where it's important that the United States either maintains or creates a lead in those particular categories of industries. And then there are other industries in which it makes sense for us to be a net importer because of the cost of the goods or the cost of labor or the efficiency of other markets to produce things better, or the fact that the goods we're talking about importing are not things that are strategically a value to the U.S.

So I think inside the category of trade relations, there are lots of ways in which we will be engaged and active and supportive of the administration and trying to accomplish the best possible trade deals that we can achieve.

[00:15:21] Bill Thorne: I wanted to ask you one last question. Other than hiring me, best piece of career advice that you've gotten in your professional life.

[00:15:29] Matthew Shay: Doc said, when creating his empire, which he had an empire of 2,000 employees and a couple hundred stores, I congratulated him on his success in accomplishing this, and he said, "Matthew, the last thing I did by myself was hire my first employee. After that, everything we did, we did as a team." Which I thought was quite insightful.

So the best piece of career advice, I don't know. Lots of things people say to you in the course of a career. And even at this ripe old age, you still learn things every day, now, unfortunately, from people a lot younger than you are. I used to be, I only learn from the old guys. I learn from old people. Now I'm learning from young people, which, I give away my age.

I think there's a whole category of things about making the most of the opportunity that you have and having faith that the next opportunity will present itself if you — so it's either bloom where you're planted. So if this is where you are now, then do the best you possibly can at this, whatever this is. Or leverage the job you've got into the next better opportunity — things like that.

But I think in general, the other observation people have made is just, you have to always be willing to take on more. You want to be the one that volunteers for whatever the project is. And then you'll figure it out. Just be willing to contribute and be willing to learn and take on new challenges, which I think goes to the general observation about always be curious.

[00:17:04] Bill Thorne: Yeah.

[00:17:05] Matthew Shay: If you aren't curious, if you don't want to learn more, then you don't want to grow. And if you don't want to grow, then —

[00:17:11] Bill Thorne: Move on.

[00:17:11] Matthew Shay: Yeah. That's the end of the line. When you stop learning and you stop growing, then your career is over. So if you aren't curious to begin with about new things, then begs the question, why are you here in the first place? So I would say, just in general, trying to find ways to make the most of the opportunity you've been given and believe in yourself, that if you do that to the best of your ability, you'll find another opportunity as long as you stay willing to contribute, and eager and engaged and curious. The next thing will present itself.

[00:17:47] Bill Thorne: Thank you for giving many of your staff the opportunity to be curious and to continue to grow and be challenged. Matt Shay, thank you very much for being a part of Retail Gets Real. And thank you all for listening to another episode of Retail Gets Real. You can find more information about this episode at retail gets real dot com. I'm Bill Thorne. This is Retail Gets Real. Thanks again for listening. Until next time.