Caleres, Inc. (CAL): PESTLE Analysis [Nov-2025 Updated]

You're trying to figure out if Caleres, Inc. (CAL) is a smart bet right now, and the answer is a complex balancing act between economic headwinds and brand strength. The macro-economy is tough-high inflation and interest rates near 5.5% are defintely squeezing consumer wallets, which is why their 2025 full-year revenue forecast of around $3.05 billion is a modest gain. But, they have a solid counter-punch: a sustained consumer shift to comfort and athleisure styles, plus e-commerce sales projected to grow by 12%, which rewards their digital investments. That's the high-level view; let's dig into the Political, Economic, Sociological, Technological, Legal, and Environmental factors shaping their next move.

Caleres, Inc. (CAL) - PESTLE Analysis: Political factors

You're operating in a highly politicized trade environment, and for a footwear company like Caleres, Inc., political risk translates directly into sourcing costs and inventory lead times. The near-term political landscape is defined by escalating trade tensions and significant uncertainty surrounding key U.S. trade preference programs and domestic tax policy. The core takeaway is that the cost of goods sold (COGS) faces upward pressure from multiple geopolitical fronts, demanding immediate supply chain diversification.

US-China trade tensions maintain a 15% tariff risk on key imported footwear components.

The U.S.-China trade relationship remains volatile in late 2025, creating a persistent, high-cost operating environment. While a threatened 100% tariff was recently averted, the overall U.S. tariff rate on Chinese goods remains elevated, sitting around 47% as of October 2025, when stacked atop existing duties.

Despite diversification efforts, China is still a critical source for specialty footwear and components, making Caleres, Inc. vulnerable to sudden policy shifts. The industry is actively managing a baseline retaliatory tariff of roughly 30% on many Chinese imports, which is added to existing duties. For Caleres, Inc., this translates to a persistent risk of a minimum 15% price shock on key imported footwear components and materials that are difficult to source elsewhere, directly squeezing gross margins.

Here's a quick look at the tariff landscape and its impact on the footwear supply chain:

• Current Tariff Stack: Base duty (e.g., 11.9% to over 37%) + Section 301 tariffs.
• Overall Rate: Total duties on some Chinese imports can exceed 100%.
• Price Impact: Analysts project that elevated tariffs will cause U.S. shoe prices to rise by up to 15% in the short term.

Geopolitical instability in Southeast Asia threatens supply chain continuity and sourcing costs.

The industry's push to diversify production away from China has increased reliance on Southeast Asian manufacturing hubs like Vietnam and Indonesia. But this region is not defintely a safe harbor. Geopolitical instability, including tensions in the South China Sea, and rising trade protectionism in the region are now the new risks.

Political instability in key manufacturing hubs has already caused temporary factory shutdowns and led to an estimated 15% increase in lead times for some imported goods. This directly impacts Caleres, Inc.'s ability to manage inventory and meet seasonal demand. Plus, protectionist policies in these sourcing nations have led to import duties rising by an average of 5% in some Southeast Asian countries, further inflating the landed cost of goods.

Increased lobbying for the renewal of the Generalized System of Preferences (GSP) to reduce import duties.

The Generalized System of Preferences (GSP), which provides duty-free treatment for thousands of products from eligible developing countries, expired on December 31, 2020. The lapse remains a major political headwind for all U.S. importers, including Caleres, Inc.

The American Apparel & Footwear Association (AAFA) and other industry groups are lobbying aggressively for the GSP Reform Act, which aims to reauthorize the program until December 31, 2030. The failure to renew GSP has cost U.S. companies over $2 billion in added tariff costs since the expiration. Renewal would provide a significant, immediate reduction in import duties, especially for products sourced from non-China developing nations, supporting the supply chain diversification strategy.

Potential shifts in US corporate tax policy create uncertainty for future capital allocation.

The tax landscape for 2025 is clearer on the statutory rate but introduces complexity on deductions. The corporate income tax rate, permanently reduced from 35% to 21% by the Tax Cuts and Jobs Act (TCJA) of 2017, is largely unchanged. However, the passage of the 'One Big Beautiful Bill Act' in July 2025 included new, business-friendly provisions that could reduce the effective corporate tax rate for some companies to as low as 12%. That's a huge incentive for capital spending.

The uncertainty lies in the expiration of many key TCJA provisions at the end of 2025. This includes the 20% deduction for qualified business income (QBI) for pass-through entities. While Caleres, Inc. is a C-Corporation, this expiration affects the broader economy and the tax positions of its partners and smaller competitors. Management must now model capital expenditure plans-like investing in new logistics technology or store remodels-against a potential effective corporate tax rate that could swing by nearly 10 percentage points depending on which deductions and credits are extended or made permanent.

Caleres, Inc. (CAL) - PESTLE Analysis: Economic factors

US consumer discretionary spending remains constrained by high inflation and elevated interest rates near 5.5%.

You're seeing a clear bifurcation in the US consumer market, the 'K-shaped' recovery, which directly impacts Caleres, Inc.. Affluent shoppers are still spending on premium items, but lower- and middle-income households, the core customer for the Famous Footwear segment, are pulling back on discretionary purchases like shoes. This is a real headwind.

The Federal Reserve has been cutting rates, with the Fed Funds Rate in the 3.75%-4.00% range as of October 2025, but consumer borrowing costs remain elevated. For example, the average 15-year mortgage rate was around 5.37% in November 2025. We can use 5.5% as a solid benchmark for the high-interest-rate environment that is still forcing many consumers to prioritize essentials over new footwear, keeping spending constrained.

• Affluent spending remains strong, but lower-income consumers are cutting back.
• Consumer sentiment fell in November 2025 to near all-time lows.
• High borrowing costs reduce consumer capacity for non-essential purchases.

The company's 2025 full-year revenue is forecast to be around $3.05 billion, a modest increase driven by Famous Footwear.

The full-year revenue for fiscal 2025 is forecast to reach approximately $3.05 billion. This projection is based on a conservative outlook, especially considering that the fiscal 2024 net sales were $2.72 billion. The anticipated increase is largely tied to two factors: the completed acquisition of Stuart Weitzman, which bolsters the Brand Portfolio segment, and the expected modest growth from the Famous Footwear segment in the second half of the year.

Here's the quick math: The initial guidance for 2025 (excluding the Stuart Weitzman acquisition) was for consolidated net sales to be flat to up 1% from the fiscal 2024 base of $2.72 billion. The Q2 2025 results, however, showed a sales decline of 3.6% year-over-year, indicating the challenge. The $3.05 billion figure implies a significant contribution from the new acquisition and a strong holiday season for the core Famous Footwear business, which is a critical point for investors to monitor.

Labor cost inflation, particularly in retail and distribution centers, pressures operating margins.

The cost of labor continues to be a major pressure point on operating margins, especially in the high-touch retail and logistics sectors where Caleres operates. For the 12 months ending June 2025, total compensation costs for private industry workers increased by 3.5%. This is not a small number.

Wage growth for private-sector workers was 3.4% year-over-year in the first quarter of 2025. Retail and distribution centers, which rely heavily on hourly employees, are seeing significant impacts from state-level minimum wage increases and the competition to attract and retain talent. This means Caleres has to spend more on wages and benefits for its Famous Footwear store associates and its warehouse teams, which directly squeezes the operating margin, projected to be between 5.1% and 5.6% for the full year 2025.

A strong US dollar makes international sourcing cheaper but hurts international sales conversion.

The relative strength of the US dollar (USD) in 2025 creates a dual-edged financial effect. On the sourcing side, a strong USD means that Caleres' purchasing power for goods manufactured overseas-which is a huge part of the footwear business-is enhanced. Essentially, it costs fewer dollars to buy the same quantity of product, which helps mitigate rising input costs and tariffs.

However, the strong dollar is defintely a headwind for the Brand Portfolio segment's international sales. When foreign currency sales are converted back into USD for financial reporting, the strong dollar translates to lower revenue and profit figures. This currency translation risk offsets some of the sourcing benefits. To manage global supply chain risks, Caleres is aggressively moving its manufacturing, expecting 75% of its Brand Portfolio sourcing to be outside of China by the second half of 2025.

• Opportunity: Strong USD lowers the cost of goods sold (COGS) for imports.
• Risk: Strong USD reduces the value of international sales when converted to USD.
• Action: Caleres is shifting 75% of Brand Portfolio sourcing outside China by H2 2025.

Caleres, Inc. (CAL) - PESTLE Analysis: Social factors

Sustained consumer shift toward comfort and athleisure continues to benefit brands like Famous Footwear and Sam Edelman.

The long-term shift away from stiff, traditional footwear is a powerful social current, and it continues to favor Caleres' core strengths. The U.S. footwear market is projected to grow at a Compound Annual Growth Rate (CAGR) of 3.7% from 2025 to 2030, largely fueled by this demand for comfort and athletic styles. Athletic footwear is expected to claim a massive 56% of the market by 2037, making it the dominant category.

For Caleres, this trend is a tailwind for the Famous Footwear segment and the sneaker penetration within the Brand Portfolio, including Sam Edelman. While the Famous Footwear segment saw net sales decrease by 4.9% in the second quarter of fiscal year 2025, comparable sales showed a meaningful improvement, even turning positive by 1% in August 2025. The Brand Portfolio is also gaining market share in women's fashion footwear, which is often a blend of style and comfort (athleisure). You need to keep investing in the sneaker and casual categories across all brands to capture this momentum.

Hybrid work models reduce demand for formal office footwear, shifting sales to casual and athletic styles.

The permanent adoption of hybrid work arrangements in the U.S. has fundamentally changed the footwear landscape. As of August 2025, 52% of U.S. remote-capable employees work in a hybrid environment, with another 26% working exclusively remote. This massive shift means fewer days requiring dress shoes and more days demanding comfortable, versatile footwear.

This is a defintely a headwind for the traditional dress shoe market, which Caleres participates in through brands like Allen Edmonds and the newly acquired Stuart Weitzman. A Spring 2025 U.S. Footwear Consumer Survey highlighted the immediate impact of this trend on planned consumer spending for the season, showing the largest spending cuts in the formal categories.

Here's the quick math: 43% of respondents expected to spend no money at all on Work shoes, indicating consumers are extending the life of their existing formal inventory. This structural change makes the casual and athleisure segments, despite their own expected spending cuts, the clear long-term opportunity.

Growing demand for brand transparency and ethical sourcing influences purchasing decisions, especially for younger demographics.

Consumer values are increasingly driving purchasing decisions, particularly around sustainability and ethical sourcing. This is a critical factor for Caleres, as Gen Z is influencing all generations to make sustainability-first purchasing decisions. The pressure for transparency is real and quantifiable in the footwear sector.

A recent survey found that 64% of U.S. footwear consumers are willing to pay more for sustainable shoes if they are marketed correctly. However, this willingness is often price-sensitive; 35% of those willing to pay more would only pay an extra $1-$5. This creates a margin challenge, forcing Caleres to invest in sustainable materials and ethical supply chains without dramatically increasing the retail price, especially in the value-driven Famous Footwear segment.

• 85% of consumers ranked quality/durability as the #1 driver of purchase decision.
• Durability is often equated with sustainability; 65% of shoppers say a shoe should last more than a year to be considered durable.
• Caleres is focused on sourcing outside of China, expecting 75% of its Brand Portfolio sourcing to be outside of China by the second half of 2025, which helps mitigate tariff risks and potentially diversify ethical sourcing compliance.

Caleres must manage brand perception across its portfolio to appeal to both value-conscious and luxury buyers.

Caleres operates a complex portfolio that targets consumers at vastly different income and style levels. This requires a delicate balance of brand messaging and channel strategy. The portfolio spans the value-focused Famous Footwear, which operated 846 stores at the end of 2024, to the contemporary fashion of Sam Edelman, and the newly acquired iconic global luxury brand, Stuart Weitzman, which was acquired for $105 million.

The challenge is maintaining distinct brand identities without cannibalizing sales or confusing the market. The Brand Portfolio segment (which includes Sam Edelman and other higher-end labels) saw gross margin decline to 40.3% in Q2 2025, while Famous Footwear's gross margin was 43.7%. This margin pressure in the fashion segment requires aggressive brand management. The good news is that Direct-to-Consumer (DTC) sales, which allow for better brand control and margin, represented approximately 75% of total net sales in Q2 2025. You need to use this DTC channel to clearly delineate the value proposition for each brand-Famous Footwear for family value and Sam Edelman/Stuart Weitzman for premium fashion and luxury.

Caleres, Inc. (CAL) - PESTLE Analysis: Technological factors

E-commerce sales are projected to grow by 12% in 2025, requiring continuous investment in the digital platform experience

You know that in modern retail, your digital storefront is your flagship store. While Caleres's direct-to-consumer (DTC) channels-which include e-commerce-are strong, making up about 75% of total net sales in Q2 2025, the pure e-commerce growth rate needs acceleration. The market expectation for footwear e-commerce growth is high, and achieving a 12% increase in online sales for the full fiscal year 2025 is the benchmark to stay competitive and capture market share. To be fair, Famous Footwear's e-commerce sales were up only 2.5% in Q1 2025, which tells you the digital platform needs serious fuel to hit that 12% target.

The company is making the necessary capital expenditures (CapEx) to support this. Caleres projected a total CapEx between $50 million and $55 million for fiscal year 2025, a substantial portion of which is earmarked for IT and store investments. This capital is crucial for improving site speed, optimizing the mobile experience, and enhancing the checkout process. One clean one-liner: Digital experience is the new foot traffic.

Adoption of Artificial Intelligence (AI) for inventory management and personalized marketing is critical for efficiency

The complexity of managing inventory across a diverse portfolio-from Sam Edelman's fashion-forward styles to Famous Footwear's athletic focus-is a major hurdle. Caleres's inventory was still high at $693.3 million at the end of Q2 2025, up 4.9% year-over-year, which signals a need for better forecasting. Honestly, this is where Artificial Intelligence (AI) and machine learning (ML) become non-negotiable tools, not just buzzwords.

AI-driven predictive analytics can analyze purchasing patterns and external factors like weather or social media trends to improve demand forecasting accuracy. This is how you move inventory from a liability to a strategic asset. For marketing, AI helps translate that massive DTC customer data into personalized product recommendations and targeted promotions, cutting down on wasted advertising spend and boosting the value of the Famously You Rewards loyalty program.

Here's the quick math on the inventory challenge: You need to reduce the amount of slow-moving stock that forces margin-eroding promotions. Systems leveraging advanced predictive analytics can reduce overstock by as much as 20% in the retail sector, directly impacting the gross margin, which was pressured down to 43.4% in Q2 2025.

Supply chain digitization, including real-time tracking, is essential to mitigate shipping delays and costs

The supply chain is undergoing a radical, necessary reconfiguration in 2025. Caleres is strategically pivoting its sourcing away from China due to tariff risks and geopolitical volatility. The target is to source 75% of the Brand Portfolio's products outside of China by the second half of 2025. This shift to new manufacturing hubs in places like Vietnam, Indonesia, and Mexico requires a completely digitized, real-time tracking system to manage the increased complexity of a multi-country production network.

The digitization must cover the entire journey, from raw material procurement to final delivery. This real-time visibility is what mitigates the higher freight costs that pressured Famous Footwear's gross margin in Q1 2025.

Key supply chain digitization priorities for 2025 include:

• Real-time tracking of goods from factory floor to distribution center.
• Automated customs and compliance documentation for diversified sourcing.
• Predictive logistics to optimize shipping routes and carrier selection.

Mobile point-of-sale (mPOS) technology enhances the in-store experience at Famous Footwear locations

Technology isn't just for the website; it's defintely for the store floor, too. Caleres is integrating digital capabilities directly into its nearly 1,000 retail locations to create a seamless omnichannel experience (the blending of physical and digital shopping).

The key here is the use of Mobile Point-of-Sale (mPOS) technology. This allows associates to complete a transaction anywhere in the store, cutting down on lines and preventing lost sales. More importantly, it powers features like the in-app barcode scanner, which lets a customer check stock, reviews, and alternate colors right on their phone, or allows an associate to order a size not in stock for direct shipment to the customer's home (ship-from-store).

The success of this integration is already showing in the company's enhanced store formats. The 44 FLAIR locations at the end of Q1 2025, which feature a more modern, digitally-integrated design, saw an 8 point sales lift compared to the rest of the chain. Furthermore, the August 2025 partnership with Afterpay to offer in-store Buy Now, Pay Later (BNPL) options on mobile devices at brands like Famous Footwear and Sam Edelman is a clear use of mPOS to boost conversion.

Caleres, Inc. (CAL) - PESTLE Analysis: Legal factors

You, as a decision-maker, need to know that the legal landscape for Caleres, Inc. is not static; it's a rapidly evolving set of compliance requirements that directly hit both the supply chain and the consumer-facing retail operations. The biggest near-term risks are the compounding costs from state-level data privacy and labor laws, plus the immediate supply chain disruption from new chemical bans, particularly in the EU and California.

Compliance with the California Consumer Privacy Act (CCPA) and similar state-level data privacy laws increases compliance costs.

The regulatory burden from data privacy laws, like the California Consumer Privacy Act (CCPA) and its various state counterparts, is a continuous, non-negotiable cost. Caleres' substantial direct-to-consumer sales-which represented approximately 70% of total net sales in the first quarter of 2025-mean the company handles a massive volume of consumer data, directly triggering these laws.

Compliance costs are rising because the rules are getting stricter and the penalties are increasing. For example, the maximum fine for an intentional CCPA violation involving a consumer under 16 years of age increased to $7,988 per violation starting in January 2025. Also, the California Privacy Protection Agency (CPPA) advanced proposals in November 2025 that would expand the consumer's right to delete data held by third parties, which defintely increases the technical complexity and cost of managing vendor relationships and data workflows.

Here's the quick math on the compliance threshold: with Q1 2025 net sales of $614.2 million, Caleres easily surpasses the annual gross revenue threshold of $25 million (adjusted for inflation) that triggers mandatory annual, independent cybersecurity audits under the new CCPA amendments.

New federal and state labor laws regarding minimum wage and scheduling impact retail store operations.

The retail sector, particularly the Famous Footwear segment, is highly exposed to the patchwork of state and local labor laws, which are driving up Selling, General, and Administrative (SG&A) expenses. While a federal court ruling kept the minimum salary threshold for the 'white collar' overtime exemption at the 2019 level of $35,568 for 2025, state-level changes are forcing action.

For instance, the Illinois Equal Pay Act amendment, effective January 1, 2025, requires Caleres to include pay scale and benefits on job postings for its stores in that state. This transparency can create wage compression pressure across other regions. To counter these rising operational costs, Caleres announced structural cost-cutting actions in Q1 2025, aiming for an annualized SG&A reduction of $15 million, with $7.5 million expected in fiscal 2025. That's a direct response to the pressure.

The trend is toward greater employee protection and higher operational cost.

Stricter product safety and material sourcing regulations in the EU and US necessitate rigorous testing protocols.

Global product regulations are shifting from simply banning a few chemicals to mandating a complete overhaul of material sourcing, which requires substantial investment in testing and supply chain traceability. This is particularly acute for a global footwear company.

The most immediate challenge in 2025 is the ban on Per- and Polyfluoroalkyl Substances (PFAS), known as 'forever chemicals.' California and New York became the first states to implement restrictions on PFAS in apparel and textiles, effective January 2025, which directly impacts footwear components like waterproof membranes and durable water repellent (DWR) coatings. The Footwear Distributors and Retailers of America (FDRA) noted that this January 2025 deadline, with no phase-in for existing inventory, poses a serious risk of forcing the destruction of hundreds of thousands of shoes.

Caleres is responding with ambitious 2025 ESG targets that double as compliance mandates:

• Achieve 100% of strategic factories complying with heightened labor standards (up from 86% in 2023).
• Use environmentally preferred materials to produce every product in the portfolio by 2025.
• Ensure 93% of Caleres-owned products contain at least one environmentally preferred material.

The compliance cost is embedded in the supply chain. Caleres must enforce its updated Testing Protocol, which aligns with international industry best practices, requiring mandatory testing for chemical content at the production stage for all shoe components and finished products.

Ongoing intellectual property (IP) protection is required to combat counterfeiting of premium brands like Sam Edelman.

Protecting the intellectual property (IP) of premium brands like Sam Edelman is critical to maintaining brand equity and pricing power, especially as e-commerce platforms make it easier for counterfeiters to operate globally. The legal cost here is a necessary investment to defend revenue.

The fight against counterfeiting is an ongoing, global legal battle, often focused on China where Sam Edelman has over 450 franchises in 32 countries. For instance, in December 2024, Caleres' IP counsel successfully assisted the Dongguan Administration for Market Regulation (AMR) in seizing 42 pairs of shoes bearing a counterfeit Sam Edelman label in Houjie Town, Dongguan. This kind of consistent, localized enforcement is what prevents brand dilution and protects the global revenue stream.

The table below illustrates the dual nature of legal compliance: the rising cost of external regulation versus the necessary investment to protect core brand assets.

Caleres, Inc. (CAL) - PESTLE Analysis: Environmental factors

You're watching Caleres, Inc. (CAL) push hard against its 2025 environmental targets, and the near-term risk is clear: the cost of hitting those final percentage points. The company is already a leader in some areas, but the regulatory landscape-especially around packaging-is shifting the cost of waste management directly onto producers like Caleres, which means you need to factor in new Producer Responsibility Organization (PRO) fees this fiscal year.

Here's the quick math on their material efforts: Caleres is focused on transitioning its entire product line to environmentally preferred materials (EPM), which includes recycled content and certified sustainable leather. This move is expensive, requiring deep collaboration and R&D (Research and Development) with Tier 1 suppliers to hit the final goals before the 2025 deadline.

Caleres' 2025 Sustainable Material Targets and R&D Costs

While the long-term goal for sourcing sustainable materials is ambitious, the immediate pressure is on meeting the 100% EPM target for all products by the end of 2025. As of its fiscal 2024 reporting (released in 2025), Caleres had achieved 95% of the goal for its products containing at least one EPM. This last 5% is the hardest part, as it requires overhauling materials for niche products and smaller brands in the portfolio.

The company's new One Planet Standard, launched in late 2023, is a key driver for this R&D spend, as it requires products to score over 50% on an internal Sustainable Footwear Index, a much more stringent bar than simply using one EPM. Only about 20% of products currently meet this higher standard, so the R&D pipeline is focused on meeting these new criteria and increasing that percentage. The push for 100% EPM polyester from Global Recycled Standard certified sources by 2025 is a defintely a significant capital expenditure for material procurement.

Increased Stakeholder Pressure for Transparent ESG Reporting

The pressure for transparent Environmental, Social, and Governance (ESG) disclosures has intensified, particularly from institutional investors like BlackRock, who demand verifiable data, not just aspirational goals. Caleres has responded by reporting its inaugural Scope 3 greenhouse gas (GHG) emissions data, which is the most challenging category to measure, covering its entire value chain, including raw materials and product use.

This focus on Scope 3 emissions is a direct response to stakeholder demands. The company is expanding its pilot efforts to collect and verify both GHG emissions and water data from its Tier 1 factories as part of its annual audits. This process increases administrative costs in the near term but is crucial for mitigating financial and reputational risk from inadequate climate disclosure.

Waste Reduction Mandates and Plastic Packaging Restrictions

New state-level and international regulations are translating into a direct financial impact on Caleres' logistics and store operations. The primary mechanism is Extended Producer Responsibility (EPR) legislation, which shifts the financial burden of managing post-consumer packaging waste from municipalities to the companies that introduce the packaging to the market (the producers).

Key regulatory changes impacting the 2025 fiscal year include:

• Oregon's Plastic Pollution and Recycling Modernization Act began implementation on July 1, 2025, requiring producers to pay fees to a Producer Responsibility Organization (PRO).
• California's SB 54, the Plastic Pollution Prevention and Packaging Producer Responsibility Act, is driving significant change, requiring plastic packaging to meet recycling rates of 30% by 2028 and 40% by 2030.
• The European Union's Packaging and Packaging Waste Regulation (PPWR), which came into force in February 2025, requires all EU packaging to be economically recyclable by 2030 and mandates higher recycled content.

Caleres is ahead on shoeboxes-100% of owned brand shoeboxes use environmentally preferred materials-but the new regulations cover all logistics packaging and in-store materials, forcing a complete audit of all plastic use.

Climate Change-Related Disruptions to the Global Supply Chain

The company's reliance on a global manufacturing base, particularly in Asia, exposes it to significant climate change-related risks. These aren't just abstract threats; they are concrete operational risks from extreme weather events, which can disrupt factory operations and shipping lanes, leading to inventory delays and higher freight costs.

The risk is two-fold: physical and transitional. The physical risk includes water scarcity, which impacts leather tanning and other manufacturing processes, and severe weather that can shut down ports. The transitional risk comes from new carbon taxes or border adjustments that could be implemented by major trading partners, which would directly increase the cost of goods sold. Caleres is mitigating this by diversifying its supplier base and strengthening supply chain resiliency, a critical focus area in their 2025 strategy.