Retail braces for a rocky start to 2025

The British Retail Consortium’s latest BRC-Opinium Consumer Confidence Tracker paints a stark picture for the retail sector heading into 2025. While consumer sentiment around personal financial situations held steady at -3 in December, broader economic pessimism deepened significantly, with expectations about the state of the economy plunging to -27, down from -19 in November. The widening gap between public perceptions of their own finances and the broader economy could spell trouble for retailers already grappling with subdued consumer spending.

Helen Dickinson, Chief Executive of the BRC, highlighted the age disparities in the data: “Perceptions were heavily skewed by age, with 18- to 35-year-olds considerably more upbeat than older generations on both questions.” Younger consumers, historically more willing to spend, may provide some relief for retailers, but the overall outlook remains grim. Spending intentions across nearly all retail categories fell, with personal spending on retail sliding from +3 in November to -3 in December. Total personal spending also dropped to +11, down from +17, reflecting a cautious consumer base entering the New Year.

Challenges on the horizon

The figures suggest that the retail sector could face a spending squeeze just as January sales begin—a critical period for clearing holiday inventory and setting the tone for the year ahead. “If these expectations are realised,” Dickinson noted, “retailers could find themselves in a precarious position, navigating low consumer demand at a time when rising costs and economic headwinds are already straining the sector.”

The backdrop for this potential slowdown includes mounting challenges: 7 billion pounds in new costs from the 2025 Budget, sluggish sales growth, and an enduring cost-of-living crisis. Retailers may be forced to pass on higher costs to consumers, reduce their physical footprints, or curtail hiring. These measures, while necessary for survival, risk dampening economic activity further, creating a vicious cycle of reduced consumer spending and slower growth.

The role of Government in navigating the storm

With business rates reform on the table, industry leaders are urging the Government to act decisively to alleviate pressures. Dickinson warned that the reforms must not exacerbate the burden on already struggling retailers: “Government must ensure that its proposed business rates reform does not result in any shops paying higher rates than they already do.” For an industry still reeling from pandemic-induced challenges, compounded by the energy crisis and inflation, supportive policy measures could mean the difference between survival and stagnation.

What it means for fashion and luxury retail

The fashion and luxury segments, often insulated from broader economic trends by affluent consumers, may not escape unscathed. With younger shoppers—those most optimistic about their personal finances—emerging as the bright spot, brands will need to tailor strategies to this demographic. At the same time, the ongoing pivot toward sustainability and value-driven consumption could accelerate, as consumers prioritize fewer, better purchases over ostentatious displays of wealth.

Luxury houses may need to double down on exclusivity and innovation, while high street retailers could focus on affordability and accessibility to maintain relevance. However, the delicate balance of raising prices to offset costs without alienating consumers will remain a central challenge for all.

Looking ahead

As the sector braces for a potentially turbulent year, resilience will depend on agility and innovation. Whether through digital transformation, revamped pricing strategies, or targeted marketing efforts, retailers must adapt swiftly to shifting consumer sentiments. Meanwhile, all eyes will be on the Government’s business rates reform, as the sector collectively hopes for relief amidst mounting pressures.

The coming months will reveal whether retailers can weather the storm—or whether 2025 will mark a further retreat for the industry in the face of mounting headwinds.