After a mixed festive season, UK retailers face rising costs and tough choices in 2025. However, Coface data reveals that some areas of the sector are proving more resilient than others.
The State of UK Retail
Shopping remains one of the nation’s favourite pastimes, with UK consumers spending £517 billion on retail in 2024, according to a January 2025 Parliamentary Briefing. At the start of the year, the UK had 324,995 retail businesses, a figure comparable to Germany.
Despite this scale, the sector is undergoing a major transition. Retailers are adapting to evolving shopping habits, accelerated by the pandemic, while managing rising costs and fierce competition. Disappointing sales during the ‘golden quarter,’ falling consumer confidence, and restructuring efforts by major names like Sainsbury’s and WHSmith highlight these challenges.
This snapshot explores the key pressures squeezing margins, their impact on retailers and suppliers, and which businesses are best positioned to navigate these shifts.
A Changing Landscape
It’s remarkable to think that 2024 marked the 40th anniversary of the first online purchase. In the past decade, e-commerce has evolved from disruptor to dominant force, particularly in the UK, where online shopping is more prevalent than in Europe and the US. The pandemic accelerated this trend, with internet sales surging from 20% in March 2020 to 37% in February 2021. Though online sales have since moderated, they remain significantly higher than pre-pandemic levels, reinforcing long-term retail trends towards digital shopping.
The decline of high street shopping led to an estimated 13,479 store closures in 2024, a 28% increase from 2023. While many were independent businesses, major names such as Homebase, Lloyds Pharmacy, Ted Baker, and The Body Shop also disappeared. High street and shopping centre vacancy rates soared during the pandemic and remain above 2019 levels.
Retailers also face escalating costs—from energy bills and business rates to rising interest payments and inventory expenses. Meanwhile, the cost-of-living crisis has dampened consumer demand, with average household disposable income falling by 2.8% between 2021 and 2022 and recovering only gradually. Retailers are balancing price-conscious customers with the need to protect their margins.
Adding to these pressures, the increase in National Insurance contributions in 2025 will raise employment costs, particularly for businesses with large workforces. Many retailers, especially smaller independents, rely on lower-wage staff, meaning this rise could squeeze profit margins further. Some may be forced to reduce hiring, cut hours, or raise prices to offset the impact.
The UK Retail Picture in 2025
While headlines have focused on retail sector struggles, the reality is more nuanced.
ONS data shows that while sales volumes dipped 0.3% in December 2024, annual sales volumes rose for the first time since 2021. Online spending also increased, up 1.5% in December and 1.7% year-on-year.
Coface’s analysis of 2024 sales and insolvency data suggests that, despite a disappointing Q4, the sector is gradually recovering. Sales volumes remain below 2019 levels, and retail insolvencies, though down from 2023’s peak, remain elevated compared to pre-pandemic figures.
Sector Performance: Winners and Losers
Food Stores - Winner ✅
The cost-of-living crisis continued to impact sales volumes, which were down 1.6% year-over-year and 5.9% below 2019 levels. While major supermarkets, especially discounters, saw strong Christmas sales, smaller convenience retailers and specialist food and alcohol stores struggled.
A key retail trend which has emerged is UK shoppers, particularly Gen Z, are increasingly influenced by health food trends on social media. This has driven demand for food supplements, vitamins, and high-protein foods, boosting discretionary spending in the health and beauty sector by 10.7% — the strongest increase in over three years.
Insolvencies in the food retail sector were 53% higher than in 2019 but down 19.3% year-over-year.
Textiles & Clothing- Loser ❌
Sales volumes fell 3.9% year-on-year and 6.5% from 2019. Footwear and leather goods were a rare bright spot, while luxury fashion, typically resilient, faced challenges due to reduced demand from Chinese consumers. Insolvencies dropped 12.1% year-on-year but remained 26.8% higher than in 2019.
Additionally, global trade tensions have added further uncertainty to the sector. The recent U.S. trade tariffs on Chinese imports could lead to higher production costs and supply chain adjustments for UK retailers reliant on overseas manufacturing. As highlighted in Coface’s latest Barometer, evolving trade policies may continue to reshape global sourcing strategies and pricing pressures in the retail sector.
Household Goods - Loser ❌
Sales volumes declined 3.3% year-on-year and 12.7% from 2019, with furniture and lighting particularly weak. However, music and video equipment sales rebounded. Insolvencies fell 25.1% year-on-year, dipping below 2019 levels, except for hardware, paints, and glass.
Other Specialised Non-Food - Winner ✅
Sales volumes rose 9% year-on-year and 6.6% from 2019, though performance varied significantly across categories. Shifting retail trends have fuelled a surge in cosmetic and toiletry sales, while jewellery sales have declined.
Non-Store Retail (Online & Mail Order) - Winner ✅
This category rebounded after a tough 2023, with sales volumes 15.3% higher than pre-pandemic levels. Insolvencies also eased but remain above 2019 levels.
Risk Assessment
Retail has been heavily impacted by the cost-of-living crisis and rising operational costs, driving corporate insolvencies to peak in 2023. However, businesses that adapt to evolving retail trends, such as brand collaborations or in-store experience enhancements, may be better positioned for success. Some segments, such as music and electronics, have recovered faster than others, like clothing and furniture.
Looking ahead, retailers must navigate increasing staff costs due to National Minimum Wage and National Insurance rises. Smaller businesses, which typically employ more minimum-wage workers, may be hit hardest, potentially leading to job cuts or price increases. The British Retail Consortium has warned that these cost pressures could hinder hiring and growth.
Consumer confidence remains a concern. The latest NIQ Survey shows confidence falling to -22, though much of this decline stems from market turmoil and economic uncertainty rather than personal financial strain. As wages rise, sentiment may improve.
Despite these pressures, Coface assesses the retail sector as high risk. Success will depend on debt levels, market positioning, and strategic adaptations. Some retailers, such as The Range, Waterstones, and Holland & Barrett, are expanding, while others focus on enhancing in-store experiences or leveraging brand collaborations.
While some household names may disappear in 2025, retail has a long history of reinvention, and reports of the sector’s demise are certainly exaggerated.
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