The year 2025 is set to be another difficult year for high street retail as rising costs continue to mount, shows the latest industry report, states that the UK is navigating a tough economic climate marked by sluggish growth, stubborn inflation, and weak consumer confidence, creating challenges for both businesses and households.
According to BDO’s latest High Street Sales tracker, total retail sales in discretionary spend categories grew by 7.1 per cent in January.
The growth however came off the back of a very weak set of results in January 2024 (-0.8 per cent) and was largely driven by growth in online sales, which jumped 15.5 per cent compared to the same period the previous year.
Meanwhile, sales in bricks and mortar stores grew by only 3.2 per cent, from a poor base of a 4.2 per cent decline, serving as a stark reminder that high street retail is struggling to recover from the trends experienced in 2024.
BDO noted that results indicate a large drop in volumes over the past two years.
Fashion and homewares retailers faced particularly challenging conditions in January, with sales in-store growing by 3.3 per cent and 3.4 per cent respectively against poor performances last year when sales fell 6.7 per cent and 10.1 per cent.
The report suggested that January’s poor weather may have contributed to mixed footfall on the high street and driven a better result for online sales, but this is also a continuation of the sector’s overall poor performance in 2024 and a disappointing final "Golden Quarter".
Consumer confidence has also taken a knock, dropping to -22 in January 2025, highlighting a general sense of pessimism about the economic outlook.
In summary, the UK is navigating a tough economic climate marked by sluggish growth, stubborn inflation, and weak consumer confidence, creating challenges for both businesses and households, states the report.
“These results may seem positive on the surface, but the underlying numbers show that the weak growth in the run-up to Christmas has continued into the new year,” said Sophie Michael, Head of Retail and Wholesale at BDO.
“While many retailers may have seen a rise in sales through the release of some of the pent-up consumer spending that didn’t come through before Christmas, January trading for discretionary spend requires heavy encouragement through discounting; this delayed spending will no doubt have a significant impact on already thin margins.
“The sector has been challenged for some time by the impact of significant cost increases, which will continue to mount throughout the year, particularly post the implementation of the changes in the budget this April.
"Raising the thresholds for National Insurance contributions will disproportionately affect retailers, who tend to have large workforces with lower average earnings. Add in increases to the National Living Wage, business rates and the Plastic Packaging Tax all coming together and at fast pace, their thin margins will be under even more pressure.
“Retailers need to find a way to balance the increased cost of doing business while investing in product development, customer service and underlying technology, like AI, that will maintain their competitiveness. They need clear visibility on how their costs will increase to identify effective actions to mitigate the impact.
"This includes clarity over how their supply chain costs will rise, with many of the businesses they rely on being subject to some of the same pressures as themselves.
"The sector already saw a high number of job losses in 2024 and retail store closures; with the oncoming cost increases, these numbers are unlikely to ease in 2025.”
