Higher Prices and Weaker Trading in 2025: How Can the Retail Sector React Now to Protect Growth?

The British Retail Consortium (BRC) and KPMG have revealed sobering data for the retail industry, with shop prices expected to rise in 2025 following a lacklustre Christmas trading period. Often dubbed the "golden quarter," October to December is typically the most critical time for retailers. Yet this year, The BRC reported non-food sales experiencing a notable contraction of 1.5% compared to the previous year, driven by weak consumer confidence and difficult economic conditions have constrained household budgets. Linda Ellett, KPMG’s UK Head of Consumer, Retail and Leisure, underscored this reality, attributing the minimal growth to the ongoing careful management of household finances.

While some may point to NEXT as a standout performer, their outperformance was largely attributed to stronger online sales and overseas growth...not in-store, bricks-and-mortar stores. The fashion and homewares retailer reported a 5.7% lift in adjusted full-price sales during the nine weeks leading to 28 December and increased its annual profit guidance by £5m.

Pressures Mounting for Retailers and Consumers

Looking ahead, the pressures on the retail sector are set to intensify. From April, rising employer costs, including increases in the minimum wage and national insurance contributions, will add to the financial burden.

According to BRC Chief Executive Helen Dickinson, these added costs leave retailers with "little hope" of covering them through increased sales.

As a result, businesses may be forced to raise prices and review their cost bases and store portfolios — a move that ultimately points to contraction on the supply side, the demand side, or most likely, both.

Separate data from Barclays highlighted the fragility of consumer spending. Card spending has remained flat since December 2023, and essential spending has fallen by 3%, driven by inflation concerns and lower fuel costs. Consumers reportedly remain acutely aware of rising food costs and household bills, with 86% of respondents expressing concern about the former and 87% about the latter.

A Growing Risk for the Retail Sector

The pullback in consumer spending—particularly in non-food and discretionary categories—poses a significant risk for retailers. Sales declines could leave many retailers exposed in underperforming locations, where the higher costs of operating stores may no longer be sustainable. The question is stark: can retailers afford a continued decline in sales, and significant rise in costs, without taking decisive action now?

Compounding the challenge is a critical pain point for retailers: the insight they need is not something they are likely to have - where are consumers shopping today and most likely tomorrow, and conversely, where are they shopping less? Without clear insights, it becomes nearly impossible to make informed decisions about which stores to invest in, relocate, or close.

This uncertainty can lead to missed opportunities and unnecessary losses.

The h3hex Solution

At h3hex, we recognise these challenges and are here to help retailers turn uncertainty into opportunity.

By combining detailed footfall data and other metrics with retailers’ commercial performance metrics, our expert analysis enables powerful optimisation strategies, anchored to the truth-point that matters most: where consumers actually are shopping, and where they are actually spending.

We help identify which parts of a store network are most vulnerable and provide actionable recommendations to protect profit, maximise capital investment plans, and ensure readiness for growth when consumer spending rebounds.

Our approach ensures that retailers are not just reacting to market conditions but proactively positioning themselves for long-term success.

As we head into 2025, the retail landscape may be fraught with challenges, but with the right data-driven strategies, opportunities for growth and resilience remain. Let’s make 2025 the year of smarter retail decisions. Partner with h3hex to ensure your business is ready to thrive, no matter what lies ahead.