According to the BRC, recent policy changes are adding over £7 billion in extra costs to retailers. (BRC)
The main cost drivers:
Employer National Insurance Contributions (NICs) – raising the cost of hiring / employing staff. (BRC)
Higher National Living Wage (NLW) – wage pressure. (The Guardian)
New Packaging Levy / Extended Producer Responsibility (EPR) – a tax on packaging to account for recycling costs. (The Guardian)
Retail Economics / Yoobic Analysis
Their report estimates an additional £5.56 billion in operating costs for 2025/26. (Yoobic)
They break down how retailers are handling these costs:
£1.76bn is expected to hit profits directly. (Yoobic)
£1.72bn may be passed on to consumers through higher prices. (Yoobic)
£2.08bn could be saved via “cost optimisation” (automation, operational efficiencies). (Yoobic)
They also warn that 22% of retailers may shrink or reconfigure their store footprint (closures or scaled-down stores). (Retail Economics)
A key long-term strategy: retailers are pushing for automation, AI tools, and productivity gains to cope with rising cost base. (Retail Economics)
Tax & Regulatory Risk
Business rates remain a big concern. Retailers are strongly opposing a proposed surtax on large non-domestic properties (rateable value over £500,000), arguing it could hit big stores and high streets hard. (The Guardian)
The BRC warns that further tax rises could drive higher shop prices, job losses, and fewer stores. (The Guardian)
In particular, they highlight that NIC increases, NLW, and the packaging levy are not just cost issues — they’re policy risks that could reshape investment and employment in retail. (FoodManufacture.co.uk)
Retailers’ Response & Strategy
According to a BRC CFO survey:
~67% said they would raise prices in response to NIC increases. (BRC)
Many plan to reduce staff hours (56%) or headcount (46%) and head-office expenditure (52%) because of cost pressures. (BRC)
Around 31% are looking at more automation to manage labor costs. (FoodManufacture.co.uk)
Retailers are also asking the government for targeted support: in a recent letter, supermarket leaders urged the Chancellor not to apply the new business‑rates surtax to large shops. (BRC)
The BRC argues that if business rates reforms go poorly (or create new surcharges), it could undermine their ability to “deliver value” to customers. (BRC)
Key Commentary & Stakeholder Perspectives
Helen Dickinson (BRC CEO):
She has repeatedly warned that the £7 billion in extra costs is putting “huge pressure” on retailers. (BRC)
On NIC + NLW: she argues these changes disproportionately impact retailers because they employ many part-time or seasonal workers. (BRC)
On business rates: she insists that reforms must not make any shop pay more than before — otherwise, it risks hurting the high street. (BRC)
In a separate warning, she said the government risks “losing the battle against inflation” if it keeps piling regulatory costs on retailers. (BRC)
Retail Economics / Yoobic:
Their “Unlocking Retail Profitability” report is very clear: operational agility is now mission-critical. (Retail Economics)
They see a divide: big retailers may absorb more costs because of scale, but smaller ones must aggressively optimize or risk closure. (Retail Economics)
The strategy mix: automation + productivity + pricing + store rationalization.
Retail CFOs (via BRC):
A majority are “pessimistic” about trading conditions over the next 12 months. (FoodManufacture.co.uk)
Many are already planning to cut back on capital spending: 46% said they’d reduce capex. (BRC)
A significant share even plan to delay new store openings. (BRC)
Implications & Risks for the Industry
Consumer Inflation:
Retailers are likely to pass a chunk of these costs to consumers — which could drive up shop prices, especially for food. (The Guardian)
This could feed into broader inflation, making life harder for households already under pressure.
Employment Risk:
Higher NICs + higher wages + cost-cutting could lead to job losses, particularly part-time or lower-paid roles. (The Guardian)
Some retailers may shrink headcount or reduce hours to manage the cost base. (FoodManufacture.co.uk)
Retail Footprint Risk:
With cost pressures mounting, some retailers may downsize store portfolios or close underperforming stores. (Retail Economics / Yoobic projection) (Retail Economics)
Business rate uncertainty (especially on big premises) could make it even harder to justify brick‑and‑mortar expansion.
Investment Slowdown:
Retailers may cut back on capital expenditure, slowing investment in technology, stores, or staff development. (BRC)
That could have knock-on effects on innovation, customer experience, and long-term competitiveness.
Regulatory Leverage:
The BRC is clearly positioning these cost pressures as a lever to force policy changes (e.g., business rate reform, more favorable tax treatment) — they’re using the narrative of “retail under siege” to push for changes ahead of key budget decisions.
If policymakers don’t respond, there’s a risk of store closures, job loss, and weaker high streets.
Good question. Below are case‑study style scenarios and insightful comments around how UK retailers are being squeezed by inflation-driven costs and policy risks right now, based on reports from the BRC, Retail Economics / Yoobic, and other sources.
Case Studies & Illustrative Scenarios
Case Study 1: Large Supermarket Chain (e.g. Tesco, Sainsbury’s)
Pressure Points:
Employer National Insurance (NIC) has gone up, and the National Living Wage has increased. These labour‑cost shocks hit supermarkets hard because they employ many part‑time or entry-level workers. (The Guardian)
Packaging levies (under Extended Producer Responsibility / EPR) add a further cost burden. (BRC)
Actions Taken:
According to BRC, about 67% of retailers say they will raise their prices to absorb NIC cost rises. (BRC)
Many are reducing store‑headcount or hours to manage cost; BRC survey shows 46% plan to cut store roles. (BRC)
Impacts / Risks:
Reduced investment: 46% of CFOs say they will lower capital expenditure, and some will delay opening new stores. (The Standard)
Profit hit: According to Retail Economics / Yoobic, a projected £1.76 bn of the extra cost may directly reduce retailer profits. (Yoobic)
Price inflation risk: Higher costs will likely be passed to consumers — but only a portion (~£1.72bn) according to Yoobic’s forecast. (Yoobic)
Case Study 2: Mid-Sized / High-Street Retailer
Pressure Points:
This retailer faces the same NIC and wage increases, which squeeze margins.
It may also face higher business rates or other regulatory burdens.
Actions Taken:
Leverage cost optimisation: According to the Retail Economics / Yoobic report, 37.4% of cost‑mitigation effort is focused on improving efficiency and productivity (e.g., staff scheduling, automation). (Retail Economics)
Rethink physical footprint: The report estimates 22% of retailers will shrink or rationalise their store portfolios due to the cost shock. (Retail Economics)
Use technology: Many are ramping up automation of routine tasks, deploying AI or mobile-first tools for frontline operations. (Retail Economics)
Impacts / Risks:
Store closures or consolidation could hurt local high streets or reduce service in less profitable locations.
Employee morale or turnover risk if automation or headcount cuts accelerate.
Long-term viability challenge: balancing cost savings with the need to invest in customer experience.
Case Study 3: Small / Independent Retailer
Pressure Points:
Less scale to absorb increased NIC, wage, or regulatory costs.
More exposed to volatility because they may not have large cash buffers.
Actions Taken:
Localised pricing strategies: Smaller retailers may pass on cost increases carefully, balancing competitiveness with survival.
Leaner operations: They might rely more heavily on owner‑operators or fewer staff per shift, or delay investment in non-essential areas.
Efficiency first: Deploying cost‑saving measures like improving inventory management, negotiating supplier contracts, or investing in small-scale technology.
Impacts / Risks:
Risk of exit: Some may not survive if costs outpace their ability to adapt, especially for those with low margins.
Reduced growth: Capex for expansion (new store, tech) likely cut or postponed.
Competitive disadvantage: Under cost stress, may be outcompeted by larger, more efficient players.
Key Commentary & Analysis
BRC (British Retail Consortium)
Helen Dickinson, BRC CEO, has repeatedly pointed out that the industry is hit hard: “Retail was squarely in the firing line … with the industry hit by £7 billion in new costs and taxes.” (BRC)
She warns that many cost increases are being “inevitably passed to consumers” because margins are already tight. (BRC)
She calls on government to make sure business‑rates reforms don’t penalise retailers further, to avoid job losses and store closures. (The Guardian)
Retail Economics / Yoobic
Their “Unlocking Retail Profitability” report details a £5.56 bn operating cost surge in 2025/26. (Retail Economics)
They argue that the only sustainable way through is operational excellence, via technology, automation, and smarter frontline operations. (Retail Economics)
According to their modeling:
~£2.08 bn of the cost increase could be offset by efficiency and productivity. (Yoobic)
~31% of the cost burden (≈ £1.72 bn) may be passed to consumers via price increases, though retailers are cautious about this. (Yoobic)
About 22% of retailers may shrink or rationalize their store portfolio in response to cost pressure. (Retail Economics)
CFO Sentiment & Risk
In a BRC survey of CFOs, 70% said they are “very pessimistic” or “pessimistic” about trading conditions over the next 12 months. (BRC)
Many CFOs foresee job cuts or reduced hours: 46% expect to cut store headcount, 56% expect to reduce hours/overtime. (BRC)
Some say they will delay store openings (25% in the survey) because of the cost risk. (The Standard)
Macroeconomic & Consumer Impact
The BRC projects food price inflation could hit 4.2% in the second half of 2025, in part because of the cost pressures. (BRC)
Retailers are worried that cost‑driven price rises could further erode consumer demand at a fragile time. (The Guardian)
There is also risk to employment: the BRC has warned some part-time jobs could be cut because of higher NIC and wage costs. (Reuters)
Strategic Implications for Retailers
Repricing Risk: Retailers must be very careful with how much cost they pass to consumers — too much and they risk demand erosion.
Cost Optimization Is Non-Negotiable: Automation, better workforce management, and process innovation are now critical just to maintain margins.
Store Strategy Will Change: Some retailers may close or downscale stores, especially lower-margin locations, which could reshape the retail landscape.
Investment Trade-Offs: With rising costs, some retailers might delay or cancel expansion plans, affecting long-term growth.
Policy Engagement: The BRC and retailers are likely to press hard in upcoming budgets for relief (e.g., on business rates) — their ability to influence could matter a lot.
Risk to Jobs: Higher employment costs could lead to reduced hours, fewer roles, especially in part-time or seasonal segments, which may have broader social implications.
