What: Economic uncertainty, rising costs, and policy shifts are fundamentally contracting discretionary spending and reshaping the US retail landscape.

Why it is important: The convergence of tariffs, inflation, and labour market shifts is forcing retailers to adopt new strategies for resilience, reflecting trends identified in the past year.

The US retail industry faces a period of profound disruption as persistent tariffs, aggressive government interventions, and mounting macroeconomic pressures converge to reshape consumer behavior and business operations. The implementation of sweeping tariffs has driven up import costs by hundreds of billions of dollars, with annual household expenses rising and consumer confidence plummeting to multi-year lows. Retailers are being forced to overhaul their supply chains, embrace AI-powered analytics, and develop new pricing strategies to navigate these challenges. Meanwhile, inflation and rising costs for essentials such as housing, energy, and healthcare are eroding disposable income, particularly for lower-income households and working parents, whose participation in the labor force is declining. The contraction in discretionary spending is now evident across multiple retail sectors, with department stores and discretionary categories experiencing notable declines. In response, leading retailers are prioritising scenario planning and systems thinking, investing in resilience and adaptability to weather this volatile environment. These shifts are not only altering the competitive landscape but also setting new standards for operational agility and strategic foresight in the industry.

IADS Notes: Throughout 2025, sources from March to July confirm that tariff-driven cost increases and policy changes have led to a sharp decline in consumer confidence and spending, with 62% of Americans concerned about rising prices and 63% believing retailers are exploiting the situation. Retailers are restructuring supply chains, leveraging AI, and adopting new pricing strategies, while lower-income households face a disproportionate drop in disposable income. The adoption of geopolitical nerve centers and supply chain reinvention reflects the industry’s urgent shift toward scenario planning and resilience.

Contingency planning for tariffs