Retail is evolving rapidly, and the gap between winners and losers is widening. Brands taking decisive action are protecting their margins and scaling, while others struggle in an unforgiving market.

The pressure is mounting globally. In Australia, ASIC data shows that retail insolvencies have more than doubled over the past two years as consumers battle a higher cost of living. In the United States, retail store closures surpassed 7,300 in 2024 — the highest since 2020 — and are projected to hit 15,000 by 2025.

While some retailers are cutting costs and hoping for relief, others are proactively automating operations, restructuring their workforce, and offshoring non-core functions to save millions. These savings are often reinvested into technology, marketing, and growth initiatives that drive long-term success.

So, how can retailers increase profit margins without sacrificing quality or customer experience?

This blog post explores seven high-impact, often-overlooked strategies that retailers are currently employing to protect margins, scale efficiently, and outpace the competition, without compromising on service or quality. By adopting these strategies, retailers can navigate current challenges and position themselves for sustained profitability and growth.

1. Leverage AI and automation to reduce operating costs

Retailers waste millions every year on manual processes that could be automated. AI and automation don’t just streamline operations; they directly reduce labor costs, boost efficiency, and enhance customer experience.

Leading retailers are already seeing major cost savings through AI-driven automation. Amazon’s investment in warehouse robotics has cut fulfilment costs by 25% in some facilities, proving how automation can drive significant cost reductions while improving speed and accuracy.

Even in-store automation is yielding significant savings. Self-checkout systems have been shown to reduce labor costs by 40%, allowing staff to be redeployed to higher-value roles and improving overall efficiency and customer service.

2. Rethink workforce strategy and minimize overhead

Retail labor costs are soaring, making it harder for businesses to stay profitable. Smart retailers are rethinking workforce structures to optimize costs.

Flexible staffing models, on-demand workers, and AI-assisted scheduling tools help reduce unnecessary payroll expenses while ensuring peak efficiency.

In-store optimization strategies, such as adjusting opening hours based on traffic data and automating self-checkout systems, have helped major retailers cut operating costs by 10-15% while improving customer satisfaction.

3. Maximize the untapped potential of offshoring

For years, retailers have offshored core back-office functions to reduce costs and improve efficiency. Customer support, finance, IT, and supply chain coordination have traditionally been the go-to roles, allowing brands to cut overhead while maintaining operations. These functions are well-established in offshore markets, helping retailers reduce labor costs by an average of 65% while improving scalability.

But offshoring isn’t just about back-office savings. Retailers looking to maximize margins are now offshoring high-value functions they might not have considered in the past. From digital marketing and eCommerce operations to merchandising analysis and HR support, businesses are shifting more specialized roles offshore, freeing up local teams for higher-impact work while driving efficiency and profitability.

The opportunities go far beyond customer service, and thinking outside the box can unlock millions in savings without sacrificing quality.

📥 Want to see exactly how much retailers are saving with offshoring? Download our Guide to Stronger Margins for a role-by-role, function-by-function cost breakdown and real case studies.

4. Negotiate smarter with suppliers and optimize inventory

Supplier costs directly impact gross profit margins, and many retailers fail to optimize their vendor agreements.

Retailers reviewing supplier contracts annually, renegotiating pricing and consolidating vendors often achieve significant cost reductions. Brands that leverage bulk purchasing, just-in-time inventory strategies, and AI-driven demand forecasting have cut costs by 15-20%, improving overall profitability.

Inventory optimization is another game-changer. Retailers using AI-driven stock management systems reduce overstock and markdown losses, ensuring higher margins on every product sold.

5. Cut margin killers from your product mix

Not all products are worth keeping on the shelf. Some drain margins due to high return rates, low demand, or excess competition.

Retailers that analyze sales data, drop underperforming SKUs, and increase private label offerings see significant profit margin improvements.

In Australia, supermarkets like Coles & Woolworths have boosted private-label sales, improving gross profit margins without increasing prices.

6. Improve omnichannel efficiency to reduce fulfilment costs

Retailers losing money on last-mile delivery, high return rates, and inefficient warehousing are seeing their margins eroded fast.

Aligning e-commerce, in-store, and fulfilment through better logistics partnerships, micro-fulfilment centers, and click-and-collect strategies has helped retailers cut delivery costs by 20%.

Retailers that optimize fulfilment costs while maintaining service speed will gain a significant advantage in 2025 and beyond.

7. Tackle shrinkage and loss prevention for immediate gains

Retailers lose billions annually to theft, fraud, and operational shrinkage. Implementing AI-powered security systems, smart loss prevention training, and POS analytics for fraud detection can immediately reduce shrinkage and improve net profit margins.

Retailers that have invested in anti-theft solutions have seen loss prevention gains of 10-15%, directly improving profitability.

Final Thoughts: The Retail Margin Playbook for 2025

Retailers who want to protect and grow their profit margins can’t afford to rely on outdated strategies.

Increasing prices or cutting costs alone won’t be enough. Instead, the businesses that will thrive are the ones that embrace smarter operational efficiencies, leveraging AI, workforce optimization, strategic offshoring, supplier negotiations, inventory control, omnichannel efficiency, and loss prevention.

Among these, offshoring stands out as one of the most immediate and impactful ways to cut costs without sacrificing quality. Major retailers that have adopted strategic offshoring are saving millions every year, reinvesting that capital into automation, marketing, and future growth.

Want to see exactly how this strategy can boost your margins? Download our guide to stronger margins for a breakdown of real cost savings — role by role, function by function.  

Or, if you want to see what offshoring could look like for your business, let’s talk. Book a chat, and we’ll be in touch soon.