The latest research from the British Retail Consortium (BRC) suggests that the sector is back on gloomy turf, with plans to raise employers’ national insurance (NI) contributions announced in the government’s most recent Budget spooking retail CFOs. 

The BRC’s survey of CFOs at 52 leading retail brands found that 70% were either pessimistic or very pessimistic about trading conditions for the coming year. Two-thirds (67%) said that they would raise prices to offset the NI hike. 

Meanwhile, a large proportion said they would reduce staff hours and/or overtime (56%), head office headcount (52%) and stores’ headcount (46%). Investment outlook was similarly muted: 46% of respondents said they would reduce capex, while 44% expected reduced profits. A quarter said they would delay new store openings.

The survey findings make for a disappointing read, not least because in August the BRC suggested that the UK retail sector was enjoying a surge of optimism, following a highly challenging spell in the wake of the pandemic. 

In a July LinkedIn post from BRC Chief Executive Helen Dickinson, she said the sector had protected itself during and after COVID-19 by investing heavily in operational improvements and streamlining supply chains. In the previous 12 months, Dickinson observed, shop-price inflation had risen by just 0.2%.

Does this latest BRC poll suggest that 2024 was merely a blip of positivity for retail in an otherwise grim climate?

Negative coverage

“I wouldn’t say that 2024 as a whole was a positive blip – but the summer certainly was,” says Jacqui Baker, Partner and Head of Consumer Markets and Retail at RSM UK. As Chair of ICAEW’s Retail Community and herself the owner of a womenswear store, Baker has an unrivalled perspective on the sector over the past few years from a number of close angles. 

Baker believes the BRC’s more upbeat report of last summer coincided with public anticipation of a change of government and the opportunity for some fresh thinking on the economy.

“There was some pre- and post-election fever that created a little bump in sentiment around July and August,” Baker says. “That, in turn, provided some certainty and boosted consumer confidence, which improved to minus-13. But come September, in the run-up to the Autumn Budget, that fell off again to around minus-20. Such dips will impact retail spend.”

Against the backdrop of a relatively high saving index, the recent cut to the UK interest rate by a quarter percent to 4.5% would encourage the public to spend more rather than save. However, coverage about the impact of the NI hike has done little to help consumer confidence.

“Both before and after the Autumn Budget, a lot of the focus was on how the NI hike would add costs to business, and that bad news naturally dampens sentiment.” However, RSM believes there is cautious optimism for a rebound in consumer spending in 2025. “While confidence dropped in January, marking the biggest monthly fall between December and January since 2011, it’s still higher than it was 10, 15 or 20 years ago. So, it’s all relative.”

Different day, different challenge

In terms of how the sector should strategise its way forward, Baker points out that many retailers have already pulled the vast majority of decisive levers. Improving operational efficiency, streamlining supply chains and rationalising product ranges, store portfolios and headcount were among the moves that led to the BRC’s glowing July assessment.

Indeed, Baker notes, some retailers are concerned that a further headcount cut will mean they will longer be operationally viable – or will invite risks. “Some of my contacts are saying that they can’t cut headcount any further, because there will be lone workers in stores. 

“That’s not great for security at a time when retail crime is a huge concern. Neither is it good for customer service, which is arguably retail’s most powerful differentiator in challenging times.”

Baker says retailers will have to keep adapting quickly to fast-changing trends and plug into data analytics to make sure their businesses have the right product lines and promotional offers in place. Meanwhile, seamless delivery services and high-quality customer service are key to securing loyalty.

“Resilience and dedication are two words that spring to mind when I think about retailers,” Baker says. “Many of them have a ‘different day, different challenge’ attitude, and are used to thinking on their feet. I know from my own business that sales are so much harder to achieve now than before the pandemic, as customers think much more carefully about spend: do you go out for a meal, go away for a weekend break or buy a new dress?”

Retailers must always think about what’s most important to the customer, Baker says. “Value for money is still a top priority, and demand for quality is also a big decision-maker when people think about where to put their discretionary spend. Customers want the basics done well.”

ICAEW’s latest Business Confidence Monitor (BCM) shows retail and wholesale to be the most pessimistic sector. Nonetheless, ICAEW Head of Business Simon Gray says, retailers remain resilient and are adapting to challenges.

“In our recent webinar Retail: Economic Outlook 2025, a poll revealed that 47% of delegates were looking to raise prices as a result of rising employment costs. Others are exploring cost savings via collaboration through the supply chain to protect margins. On a more positive note, the BCM did reveal a more favourable outlook for 2025. It will be interesting to see where its results for Q1 this year land.”