Retailers grapple with economic pressures, cautious spending, and increased operational costs.
Retailers across the UK are preparing for a challenging year as mounting economic difficulties continue to impact the sector. James Steel, who runs a historic collectibles shop in Nailsea, southwest England, has faced increasing financial pressures since opening his store nearly two years ago. Despite attracting local customers, the escalating costs are threatening the sustainability of his business.
Steel cited rising corporation taxes, soaring energy prices, higher minimum wages, and inflated goods prices as key factors that are making it harder to balance his books. “The financial pressures are only growing. It’s becoming a real challenge to keep things running,” Steel said.
Consumers Reluctant to Spend The UK’s ongoing cost-of-living crisis has resulted in more cautious consumer behaviour, with many shoppers reluctant to spend. The sight of empty storefronts has become all too common, reflecting the struggles within the retail industry.
According to data from the Centre for Retail Research, around 13,500 shops across the UK closed in 2024, a 28% increase from the previous year. Furthermore, rising national insurance contributions and minimum wage hikes have added £6.6 billion in costs to the sector. Guy Leman from the British Retail Consortium (BRC) noted, “Retail operates on very thin margins and cannot absorb these additional expenses.” He warned that the combination of these factors could lead to higher prices, job losses, and even more store closures.
Government’s Business Rate Reform Proposal In a bid to alleviate some of the sector’s financial strain, the government has proposed reforms to the business rates system. These include a 40% reduction in rates for retail, hospitality, and leisure businesses until 2026, capped at £110,000 per business. Leman stressed the importance of these reforms, saying, “The current system has stifled investment in physical stores and high streets. This reform is essential to support the industry.”
Declining Retail Sales and the Rise of E-commerce Despite some hope during the Golden Quarter—spanning Black Friday through Christmas—sales growth was minimal, with only a 0.5% increase in sales value. Experts are predicting that 2025 could present even greater challenges. Meanwhile, e-commerce continues to grow, now accounting for over 25% of total retail sales. The convenience of free delivery and the growing reluctance to pay for parking or public transport are pushing consumers to shop online rather than in-store.
Struggles of Small Retailers Retail employment accounts for nearly 10% of jobs in the UK, but job losses in the sector have steadily increased over the past four years. For small retailers like Steel, operating a physical store is becoming increasingly unsustainable. “We’re planning to shift online when our lease expires next year. The costs of running a brick-and-mortar store are simply too high,” he admitted, reflecting a growing trend among small business owners.
With rising costs, store closures, and changes in consumer habits, the retail industry faces a tough road ahead as it navigates the ongoing economic challenges.
