The majority of UK retailers have now released their 2024 Christmas trading updates. Despite the post-budget headwinds and now traditional negative headlines and commentary, sales have generally proved to be relatively robust for individual operators. 90% of retailers reported either LFL or total sales growth over the peak-trading period, with average total sales growth from those that reported of c.5%. This is down from c.6% last year, suggesting that consumers did proceed with a degree of caution (and volume growth was limited), but resilient retailers continue to drive sales growth and defy the challenging market conditions. 

^{NB (1): Results are taken for the UK as standard, when not available, Group results are taken
NB (2): Not all reporting periods are directly comparable
*In-store sales
**based on Kantar data
^full year}

Official data sources portray a more negative scenario, with both BRC (Oct-Dec total sales growth: 0.4%) and ONS (Dec sales volume growth: -0.3%) reporting disappointing festive sales. The ONS focussed its commentary on falling sales volumes (particularly in the food sector) rather than on sales values (ie. the total amount spent), which is the metric that most retailers report on. In addition, there is the usual caveat around differing reporting periods, with the Christmas period now much broader than just December.

These factors partly explain the contradiction between official statistics (which drive many of the negative headlines) and the more upbeat view from the majority of retailers. Indeed, a forensic analysis of Christmas trading statements reveals that retailer sentiment is notably more positive than the official perspective. Other notable trends to emerge from the festive updates include:

Despite ONS data pointing to 1.9% volume decline in food stores in December, the grocers themselves reported near-unanimous healthy trading. £13bn passed through UK supermarket tills over the four weeks to 29 December, with take-home grocery sales up 2.1% YoY (according to Kantar data). Marks & Spencer was the standout performer, posting total growth of 8.7% in food sales. Ocado (total sales: +9.6%), Lidl (total sales: +7%) and Aldi (total sales: 6.6%) were the other notable ‘outperformers’, while the market leaders also beat inflation (Sainsbury’s total sales: +3.8%; Tesco LFL sales: +4.1%). While shoppers were willing to trade up (Sainsbury’s Taste the Difference and Tesco’s Finest ranges both +16%), value and promotional sales were also key drivers of sales growth over the festive period.

Away from grocery, the picture for discretionary spend was slightly more mixed. Department / variety stores reported low growth on aggregate, with Marks & Spencer (Clothing & Home) and Argos both recording c.1% growth. There were also signs that value spend (ex. grocery) is coming under pressure (B&M LFL sales: -2.8%; Poundland total sales: -7.3%). Many consumers appear to be gravitating toward higher quality retailers (and those with coherent omni-channel capabilities), and prioritising fewer but better-quality items, as real wages start to show signs of recovery.

The evidence from the Fashion sector is relatively limited, but for once chimes with ONS data (December clothing sales: +4.4%). Next reported predictably healthy results (total sales: +6%), driven consumers’ willingness to trade up, and also prioritise discounted items, as well as online (+6.1%). This online performance contrasts starkly with the only pureplay to report (Sosander total sales: -14.6%), demonstrating the vital role of the store in retailers’ strategies. JD Sports’ results, while still positive, were slightly more muted (December LFL sales: +1.5%), as the retailer prioritised margin on the back of continued price and promotional discipline.

The resurgence of in-store trading continued over Christmas, as retailers encourage consumers back to their stores in order to mitigate the impact of online. Click-and-collect and free returns are on the rise, as stores are increasingly being used as local fulfilment hubs. Dunelm (total sales: +1.6%) highlighted strong growth in click-and-collect sales, as it further increased the proportion of products available to be collected in stores. And Currys, in a positive update (LFL sales: +2%), reported a 13% increase in order-and-collect and 24% growth of online-in-store sales, showing the competitive advantage afforded to it by its stores.

Currys boosted this advantage by rolling out a series of store updates ahead of peak trading to improve the customer experience. And, in a notable trend, Marks & Spencer also reported that new and renewed stores continued to ‘outperform expectations.’ By investing in in-store propositions, retailers are boosting the appeal of omnichannel and differentiating against pureplay rivals.

Almost without exception, retailers referenced the ‘challenging market conditions’ in their updates. While most defied the odds to successfully drive sales growth over Christmas, margins and profits will inevitably come under pressure as costs rise. JD Sports referenced ‘market headwinds higher than we anticipated’ as it warned of full year profits slightly below previous guidance, while Next warned that employer tax rises will ‘dent consumer spending in the UK in the coming year.’

There is no doubt that UK retailers face significant cost pressures in 2025 (National Living Wage: +6.7%; National Insurance: +1.2%). As a result, slight retailer margin erosion appears inevitable. However, while there are certainly elevated risks for smaller operators in particular, larger retailers have greater scope to mitigate the impact through cost saving measures.

The footfall data is contradictory, with BRC reporting a 2.5% drop in footfall in the festive season, with high streets and shopping centres particularly affected. According to MRI, however, overall footfall rose marginally in December (+0.4% YoY), following the recent trend of low / no growth. MRI reported low footfall growth on the high street (+0.3%), whereas shopping centres experienced a decline of -0.1%. Encouragingly, on both measures, retail parks were in positive territory, and continue to be the only asset type where footfall exceeds pre-Covid levels.

While on paper, traditional retail park occupiers are at the greatest risk of weakening discretionary, big-ticket spend, the market fundamentals remain compelling. In addition to the strong footfall story, occupancy-cost-ratios are typically much lower at retail parks, enabling occupiers to better mitigate cost inflation. We therefore expect continuing healthy occupier demand for space within retail parks, as well as in catchment dominant shopping centres and the best high street locations.

As we enter the new year, the outlook for economic growth, inflation, interest rates and consumer spend is uncertain, and retailers are grappling with higher costs from the well-documented increases in taxation (and their likely inflationary impact). However, the most recent economic indicators are marginally more positive (GDP, inflation and consumer confidence). In addition, a notable theme from the updates is that resilient retailers are concentrating on what is within their control, and are laser-focussed on unlocking opportunities in the current market.

The market in 2025 will undoubtedly be challenging (when was it ever not?), but the fundamentals of physical stores remain robust, driven by the rebasing of occupational costs, a more nuanced appreciation of the cost of online, and their vital role as local fulfilment hubs. All in all, despite the unwelcome distraction of the cost increases, we believe that the outlook for the retail sector is as ‘cautiously optimistic’ as it has been for a decade.