Despite 2.5% Sales Uplift, UK Retailers Say It’s Not Enough to Cover Rising Costs

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What’s the Situation: 2.5% Sales Uplift vs Rising Costs

  1. Sales Growth Isn’t Enough
    • According to BRC-KPMG data, UK retail sales rose 2.5% year-on-year in July. (Retail Rewired)
    • However, retail leaders warn that this growth is “barely touching the sides” of the £7 billion in additional costs imposed on them by recent government policy. (The Standard)
    • Helen Dickinson, CEO of the British Retail Consortium (BRC), has said that unless costs are mitigated, retailers will face hard choices around investment, jobs, and even store closures. (The Standard)
  2. Where the Costs Are Coming From
    Retailers are pointing to several key cost pressures:

    • Employer National Insurance Contributions (NICs): This was raised, adding significantly to labor costs. (The Guardian)
    • National Living Wage: A higher minimum wage is increasing wage bills for many retailers. (The Guardian)
    • Packaging Levies: New or reformed packaging taxes (environmental levies) are increasing operational costs. (The Guardian)
    • Operating Cost Inflation: According to Retail Economics (via Retail Rewired), operating costs overall are rising by an average of 3.9% year-on-year, which they say is equivalent to the cost of nearly 195,000 full-time retail jobs. (Retail Rewired)
    • Energy, Supply Chain, and Labour Pressures: Some of the cost pressures also come from higher upstream costs (e.g. for suppliers), which are being passed down the chain. (Savills PDF)
  3. Retailers’ Pricing Strategy
    • Despite these pressures, many retailers are limiting how much of the cost they pass onto consumers. Retail Gazette reports that in March some retailers held back on price rises, despite the cost headwinds. (Retail Gazette)
    • But at the same time, a large share of retailers (per BRC data) are planning to raise prices: ~67% of finance heads in a survey said they would need to hike prices to cope with national insurance and wage cost pressures. (The Independent)
    • The BRC also warns that more tax burdens (e.g., in the upcoming Autumn Budget) could force further price increases. (Retail Rewired)
  4. Inflation Risks for Consumers
    • According to the BRC, food price inflation is expected to accelerate: in their modeling, retailers expect food prices to rise by ~4.2% in the second half of the year. (The Guardian)
    • Non-food prices are also under upward pressure, given squeezed margins and rising business costs. (The Independent)
    • Helen Dickinson (BRC) has warned that if retailers are forced to pass on even more costs, it may hit households — especially those on lower incomes — and could reduce consumer spending. (The Standard)
  5. Operational Risks
    • According to a Retail Systems survey, around a third of retailers plan to accelerate automation to manage labor cost pressures. (retail-systems.com)
    • Some retailers are already planning to cut capital expenditure, delay new store openings, or scale back investments to manage tighter margins. (Retail Rewired)
    • The risk of job losses is real: as costs rise, some retailers may reduce store staff or restructure.

Key Commentary & Broader Implications

  • From the BRC: The trade body is being very vocal — they’re calling on government to rethink the tax burden they’re placing on retailers (especially via NICs and packaging levies). (The Guardian)
  • KPMG’s View: Linda Ellett, head of consumer, retail & leisure markets at KPMG, notes that although warm weather and sporting events pushed up retail sales in July, the growth is largely being driven by higher prices, not stronger consumer demand. (Retail Rewired)
  • Retail Economics: CEO Richard Lim warns that the scale of cost increases could reshape the retail landscape — with more closures, reduced investment, and a push for more automation. (Retail Rewired)
  • Broader Economic Risk: If retailers pass costs on, that could increase inflation further, which would feed through to consumers already under pressure — potentially hurting consumer spending and economic growth.

Bottom Line

  • A 2.5% rise in sales sounds good on the surface, but for UK retailers, it isn’t nearly enough to offset the £7 billion+ of new cost pressures they face.
  • Much of their cost burden comes from policy-driven things (higher employer NICs, living wage, packaging tax) rather than just macro shocks.
  • Retailers are caught in a tight spot: if they raise prices, they risk losing customers; if they don’t, their margins erode, which could lead to job cuts and reduced investment.
  • There’s a strong call from the industry for government intervention, particularly on reducing tax burdens or reforming the structure of business rates and levies, to prevent long-term damage to the retail sector.
  • Good point. Here are case studies and key comments from UK retailers that help explain why, even with a sales uplift, they say it’s not enough to absorb their rising costs. (Note: I didn’t find a credible/public source that exactly cites a “2.5% sales uplift” in the same context as the cost claims — but I’ll work with the broadly reported cost pressures and retailer reactions.)

    Key Case Studies — Retailers Feeling the Squeeze

    1. Next
      • Cost Impact: Next expects a £67 million increase in its wage bill due to higher employer NICs and a higher national living wage. (The Standard)
      • Pricing Response: It plans an “unwelcome” 1% price increase on like-for-like goods to offset around £13 million of that cost. (The Standard)
      • Efficiency Measures: To mitigate further, Next is trialling self-service tills. (Retail Gazette)
      • Outlook / Growth: The company warns that sales growth may slow in 2025 as these tax and wage pressures feed through. (The Standard)
      • Wage Cost Breakdown: According to its trading statement, part of the £73 m full-year impact comes from the ENI (Employer NIC) threshold reduction, disproportionately affecting part-time workers. (London Stock Exchange PDF)
    2. Marks & Spencer (M&S)
      • Budget Cost Hit: M&S expects a £120 million hit from the government’s budget measures. (The Independent)
      • National Insurance Impact: CEO Stuart Machin says ~£60 million of that comes from increased employer NICs; another ~£60 million from higher wage costs (minimum wage increases). (The Guardian)
      • Strategy: While M&S wants to absorb the hit (“do everything we can … to avoid passing it on”), Machin nonetheless acknowledges the challenge. (The Independent)
      • Operational Adjustments: The company is looking into improving the efficiency of its stores, its distribution, and its supply chain. (The Guardian)
      • Risks to Jobs: M&S suggests they don’t foresee big job cuts, but they’re more cautious with hiring given the cost environment. (The Guardian)
    3. Tesco
      • NIC & Packaging Costs: Tesco is pushing a big cost-cutting drive, citing an extra £235 million in NICs. (The Guardian)
      • Efficiency Drive: To mitigate, they plan to cut £500 million from costs more broadly. (The Guardian)
      • Public Comment: Tesco’s CEO, Ken Murphy, has publicly warned that the rising tax burden is becoming unsustainable: “enough’s enough.” (Financial Times)
      • Employment Stance: Murphy says they’re not ruling out job cuts, but they’re also using cost savings to support growth. (The Guardian)

    Broader Industry Commentary & Observations

    • BRC & CFO Survey Findings
      • According to a BRC survey of 52 retail CFOs: 67% plan to raise prices because of the employer NIC increase. (The Standard)
      • Large concern: 88% of these CFOs list “tax and regulatory burden” (NIC, business rates, packaging levy, etc.) among their top 3 business risks. (BRC)
      • As a result, many are reducing hours, cutting headcount (both at stores and HQ), or accelerating automation. (FoodManufacture.co.uk)
      • The BRC warns that the “double whammy” — NIC + living wage + packaging levy — could reduce margins, increase prices, and risk job losses. (The Guardian)
    • Cost Pressure Estimates
      • The BRC estimates that the aggregate cost hit from the budget measures could be £7 billion for UK retailers. (The Guardian)
      • Retail Economics (via Retail Rewired) estimates ~£5.56 bn additional costs for 2025/26, driven by rising operating costs (wages, NIC, etc.). (Retail Rewired)
      • Given very tight retail margins (often 2-4%), these cost increases are particularly challenging. (BRC)
    • Tax / Regulatory Pressure
      • Retailers are calling on the government to mitigate this burden — e.g., by reforming business rates so stores don’t pay more than before. (The Guardian)
      • The BRC argues that without such changes, the increased costs could feed into higher consumer prices, reduced jobs, and store closures. (The Guardian)

    Interpretation & Implications

    • Even if sales are improving (or at least stable), rising structural costs (taxes, wages, regulation) are significantly narrowing margins.
    • Retailers are partially passing costs on, but not fully — likely because of competitive pressures and consumer sensitivity.
    • There’s a risk of job losses, particularly in entry-level or part-time roles, because the NIC threshold change disproportionately affects those roles.
    • Longer-term, retailers may have to rely more on technology (automation, self-service), cost efficiencies, or scale to absorb these pressures.
    • If the government doesn’t respond (or relieves some burdens), smaller retailers may be hit hardest, and retail industry dynamics (store closures, investment pullbacks) could accelerate.

     

 

Categories: GB News, UK News