So this is Christmas… how will UK retailers fare?

With the festive season upon us, UK retailers are preparing to hold their ground over the Christmas period. The legacy of inflation still lingers, with the impact of previous price spikes continuing to strain consumer confidence despite inflation rates returning to more stable levels this year. 

Last month's Budget compounded these challenges, announcing larger-than-expected increases to the National Living Wage and National Insurance Contributions, bringing particularly difficult news for retail, a sector relying heavily on part-time and lower-income workers. 

AlixPartners’ UK Retail Christmas Sales Forecast

Against this bracing headwind, a strong festive performance is more important than ever for UK retailers, yet the moderate sales uplift anticipated this Christmas is unlikely to shift the challenging outlook for 2025. Our UK Christmas Retail Sales Forecast predicts a year-on-year increase of 5.8% in in-store and online retail sales, reaching £99.51 billion in November and December 2024. This includes a 4.0% increase for apparel, 3.6% for household goods, and 2.5% for grocery. Yet, when adjusted for inflation, this overall growth narrows to 2.2%, with food retail expected to decline by 0.7%.

Our forecast is informed by analysis of UK ONS retail sales and consumer confidence data, supported by findings from Spending, Disrupted, AlixPartners’ forthcoming 2025 Global Consumer Outlook – a survey of 2,000 UK consumers between 20-30 September, and a total of 15,000 consumers worldwide.* Our 2023 Christmas forecast was accurate to 0.3%.  

Consumer confidence wanes: A fifth of UK consumers intend to spend less this Christmas

Consumer confidence has followed a downward trajectory after a promising summer, falling from -11 in August to -20 in September, and dipping again to -21 in October. 

This sentiment is echoed in Christmas spending intentions, with only 9% of UK consumers planning to spend more this Christmas than last year, while 45% intend to spend the same and 22% plan to cut back (24% told us that they don’t spend in this category). Grocery mirrors this trend, with just 13% of consumers intending to increase their food budgets. The majority, 55%, plan to maintain last year's grocery spending levels, while 21% will reduce their expenditure.

A quarter of UK consumers are cutting back on Christmas gifts

Spending cutbacks will hamper the holiday spirit, with UK consumers planning to reduce spend on Christmas holiday decorations (29% of consumers), gifts for themselves (24%), and gifts for others (24%). Just 11% of consumers plan to spend more on gifts for others, while over a third do not intend to purchase gifts for themselves. Consumer demographics will, of course, show differences in spending patterns, with those aged 65 and over most likely to reduce their holiday expenditure, while 18-24-year-olds are most likely to spend more.

A window of opportunity 

While this Christmas seems unlikely to be a winter wonderland for UK retailers, there is some hope on the horizon. The increase in the National Living Wage presents a window of opportunity, particularly for those retailers serving lower-income consumers, to capture a greater share of wallet before further price increases take hold. Retailers positioned to capitalise on this window quickly may see share growth during the festive period.

If consumers had more money in 2025, grocery is a slight winner – but more would bank it or travel

Beyond Christmas, however, should consumers gain more disposable income in 2025, a mere 13% would channel it towards groceries and 9% towards non-food items like clothing and electronics. 35% would save the extra funds, while 28% would allocate them to travel and holidays. 

These insights illustrate an increasingly tough environment for UK retailers, who will need to compete for a small share of consumers' limited spending capacity.

Sharp strategies are required as we head into 2025 

As we move into a new year, it is unlikely that we will see a reduction in retail turnaround or transformation activity. With tight margins unable to absorb rising costs, retailers must consider price rises and evaluate efficiencies. 

In the opex budget, management teams will need to revisit labour and non-labour expenditures, potentially outsourcing labour to third-party service providers, although these providers will also be seeking to pass on their own higher employment costs to clients. There may be room for additional efficiency gains through labour reductions or offering part-time workers fewer hours, although with nearly 400,000 retail jobs already shed over the past three years, room for manoeuvre is limited. Capital expenditures (capex) will also require reprioritisation, with a focus on productivity and growth to ensure better returns on investment. 

In this context, agility is paramount, with all businesses needing to be prepared to adapt swiftly and make tough decisions in the months ahead. While UK retailers face a subdued Christmas season, there will be opportunities for those who are able to act with strategic focus and foresight. 

*Covering the period from 1 October to 31 December, our Christmas retail sales forecast excludes motor vehicles, fuel, and restaurant and drinking establishment sales.