Market characteristics
Retail Economics have identified the following key data points for 2025 :
- Total value of UK retail sales was £492bn (2024: £468bn)
- People employed in UK retail were 2.8m (2024: 2.8m)
- Proportion of consumer spending that goes through retail is 1/3 (same as for 2023 and 2024)
- Percentage of retail sales made online was 27.4% (2024: 27.1%)
- Growth in UK retail sales value was 5.1% (2024: 1.5%)
- Total number of VAT-registered retailers in the UK were 212,900 (2024: 214,625)
- Total number of retail outlets in the UK was 299,565 (2024: 302,600)
- Retail generates 6% of total GDP (same as in 2023 and 2024)
- Online retail sales rose by 6% in 2025 (2024: 3.2%)
Our latest research using analytics provided by financial health monitoring specialists, Company Watch shows the following overall financial characteristics in March 2026 compared to May 2024:
- Total Assets Employed – £171bn (2024 £218bn and pre-pandemic £240bn)
- Total Debt – £24bn (2024 £45bn and pre-pandemic £70bn)
- Total Net Worth – £59bn (2024 £76bn and pre-pandemic £84bn)
How was the 2025 festive season for UK retailers?
An endemic characteristic of the UK retail sector is its dogged determination to focus on sales statistics and a tendency by some within it to downplay the relative importance of profitability. The old but very relevant cliché of ‘top line vanity, bottom line sanity’ hardly ever gets a mention. Almost the only comment since Christmas 2025 on retail profits has been reserved for the continued out-performance of Next and the varying fates of the top grocers. Instead, virtually all briefings and media comment has been about the revenue statistics.
The outcome was summed up by the retail property advisors, Savills under the heading “a year reinforced, not redefined”:
“Overall, the Christmas trading period capped off 2025 with performance that largely reinforced the year’s prevailing trends. UK consumers remained selective but engaged, rewarding retailers who balanced value, convenience, and quality with strong omnichannel execution. Grocers, value specialists, and digitally enabled operators with strategically utilised store estates emerged as the clearest competitive winners of both the quarter and the year, while those undergoing strategic resets or facing operational challenges delivered more subdued outcomes. The festive period did not fundamentally shift the trajectory of 2025, but it magnified the advantages of operators already aligned with the needs of a highly value-conscious UK market.”
Retail commentators have identified some key features from the festive season:
- sales growth was driven by inflation, not by higher volume;
- consumer priorities were shaped by value consciousness;
- omnichannel capability produced the best results, through the integration of digital with store infrastructure;
- selective consumer behaviour was visible in the divergence between strong grocery performance and softer general merchandise results;
- there were mixed results for those retailers undergoing a strategic or operational reset; and
- There were signs of resilient, value-led demand at specialist retailers.
Ultimately, the verdict seems to be that there were, as always, winners and losers and that things could have turned out worse than they did. Consumers were still determined to celebrate the festive season, but in a restrained and price-conscious way. The British Retail Consortium caught the sector’s mood well, describing it as a ‘drab Christmas for retailers’.
Current & future challenges
Little has changed since our last report on the UK retail scene in October 2025 . Retailers are beset by a wide range of ongoing issues, both now and in the foreseeable future. These include:
Geopolitics
Whether it is concerns about terrorism reducing inbound tourism or tariff wars affecting supply chains, input costs and profit margins, the current chaotic international politics can only have a negative effect on UK retailers. After the gross uncertainties of 2025, the UK and the global economies have been plunged into still more dangerous territory by the war in Iran. Nobody can predict how this will end and what will happen before it does.
Cyber security
The headlines on the spate of cyber attacks against major UK retailers in 2025 may have faded, but the threat of more such incidents has not abated. Beyond the financial and reputational damage suffered by the likes of M&S and the Co-op, the subsequent hacking of vital systems at Jaguar Land Rover was sufficiently serious to have a significant impact on the UK’s GDP, contributing to a 0.1% contraction in September 2025 GDP and a sharp 28.6% fall in motor vehicle manufacturing. It was the most economically damaging cyber event in UK history, causing around £2bn in losses and a 5-week shutdown, significantly slowing the UK’s Q3 growth.
Consumer confidence
The latest consumer confidence research carried out by the British Retail Consortium (BRC) in March 2026 confirms that consumer confidence in the UK has collapsed since the start of the Iran war. The sharp rise in energy prices caused by the effective closure of the strait of Hormuz and attacks on infrastructure in the region has led to fears of higher inflation and weaker growth across oil-importing countries.
Asked about the state of the UK economy over the next three months, 64% of respondents told the BRC they expected it to get worse. Just 11% thought it would get better. The resulting net balance of -53% was sharply lower than the -20% reading just a month earlier. This will inevitably affect consumer spending sentiment.
2024 and 2025 Autumn Budget cost increases
The 2024 Autumn Budget is said by the BRC to have imposed additional costs of £7bn on UK retailers and been the major factor in a fall of 93,000 in retail employment between March 2024 and when the Budget measures came into effect at the beginning of April 2025.
This was followed by further additional cost burdens resulting from the 2025 Autumn Budget, in particular further significant increases in the National Minimum Wage.
Business rates
The 2025 Budget offered much-needed relief for some retailers, but fell short of the overall help the sector desperately needs. The 5p rates reduction for retail, hospitality and leisure properties with a rateable value below £500,000 is unlikely to fully fix the situation where retail, as 6% of the economy, pays over 20% of all business rates. Including supermarkets and anchor stores in the new surtax intended to support the regeneration of high streets is a retrograde step, which does little to mitigate the rising cost of food and essentials.
Staffing and the Employment Rights Bill
The turmoil in all staffing aspects of retail is well illustrated by statistics released in June 2025 by the British Retail Consortium, confirming that:
- The retail sector had shed 364k jobs in the past decade
- 93k jobs were lost between April 2024 and March 2025
- 246k part roles have been eliminated since 2015
The BRC also released its Retail Jobs Report in June 2025, highlighting the operational and cost issues that retailers will be faced with as a result of the Employment Rights Bill.
The government’s U-turn on Day One unfair dismissal entitlement was a welcome concession, but the industry remains concerned about the implications of a telescoped introduction timetable and a lack of ongoing consultation on the Bill.
Supply chain disruption
Supply chain disruption threats are hardly any news to retailers, who have endured the chaos of the pandemic and then the fallout from the Ukraine war. Now there are deep concerns about the worldwide commercial fall-out from the Iran War.
Technology
AI is permeating every aspect of every business, either invited in by business owners or forcing its digital way into how they run their companies. In a sector so reliant on the customer experience, utilising this technology without lessening or de-humanising the relationship with shoppers continues to cause much debate and demands not just considerable investment, but a high degree of operational flexibility and agility. There is a real risk that the huge cost of implementing these technologies will divert investment away from maintaining and improving other vital aspects of retailing.
Financial risk
We have used the Company Watch financial health monitoring system once more to analyse the latest financial statements filed at Companies House for every company registered in the UK, which claims that it operates in the retail sector. Our research covered a total of 145,036 companies.
Overall financial health
At the end of the pandemic in October 2022 the average financial health rating (H-Score® – see below) for the sector stood at 40 out of a maximum of 100. It had fallen to 37 by August 2023 and stayed there until late 2024. In our latest analysis, it is at 36. The average H-Score for the whole UK economy is around 48.
Looking at the different size ranges for retailers (as measured by total assets), the health rating for the larger retailers (those with assets of £1m+) has come down from 62 in August 2023 to 58 now. By contrast, there has been a marginal improvement in the rating for the very smallest micro-entity retailers with assets of less than £25k, which has risen from 28 in August 2023 to 29 now. These movements are small but significant given the challenges facing the sector.
Failure risk
Company Watch uses complex analytics to generate an H-Score© for every company out of a maximum of 100. This is based on its latest published accounts and various key ratios within those accounts. An H-Score of 25 or less indicates that the company concerned has a one in four risk of going through a formal insolvency process or a significant financial restructuring at some point during the next three years.
Out of our sample of 145,036 companies, 65,817 or 45% (August 2023: 43%) are in the Company Watch warning area with an H-Score of 25 or less. We broke down our results according to the size of each company. For smaller businesses with:
- total assets between £50k and £124k, 45% were in the warning area (40% in August 2023).
- total assets between £25k and £49k, 50% were in the warning area (47% in August 2023)
- total assets below £25k, 57% are at serious financial risk (58% in August 2023).
Even with the major and more financially robust retailers there is a higher percentage at risk – 22% now vs. 18% in August 2023.
Across the whole economy, some 19% of all companies are in the Warning Area, which highlights how vulnerable the retail sector is to business failure.
This research confirms that while there are some large retailers with serious financial issues, the vast bulk of financial risk in the sector lies with the smaller, less well capitalised businesses.
Zombie companies
We also identified any ‘zombie’ companies with negative balance sheets (by at least a de minimis figure of £20k). There were 20,249 (14%) retail zombies with a combined excess of liabilities over their assets of £3.4bn (up from £2.3bn in August 2023). It remains worrying that one in seven retailers has filed a balance sheet, which is technically insolvent by one of the standard definitions.
Negative working capital
We also looked at companies with negative working capital, where their liabilities falling due within a year were greater than their current ‘quick’ assets such as cash, inventory and receivables (again by at least £20k). We found there were 24.756 (17%) such retail companies. This too is a negative indicator for the financial health of the sector.
Debt
Debt levels across the sector continue to fall. There had been significant reductions between August 2023 and May 2024 (31%) and then again between May 2024 and November 2024 (37%). Since then, borrowings have come down by a further £4.4bn to £24bn.
Looking at the sector according to size of company, this reduction has been heavily focused among the largest retailers with assets of £1m of more, but every other size category has also trimmed its debt.
A more detailed summary of our research can be found here.
Retail insolvencies
The all-time peak in UK corporate insolvencies came in February 2024, when the rolling twelve-month figure reached 27,182. Since then, failure levels have dropped back and are currently plateaued at around 25,000 per annum. Retail failures are running at 8% of corporate insolvencies, with 1,926 retail companies in England & Wales filing for insolvency in the twelve months to January 2026. It’s notable that the current failure rate is higher than the sector’s 6% share of GDP, confirming the higher risk factors for retailers.
Major retail failures
The Centre for Retail Research statistics cover the failure of major retailers in the UK. These figures capture the number of companies affected, as well as the number of retail stores and retail jobs put at risk.
There has been little to report so far in 2026, although the third Administration of Quiz in six years is a major addition to retail’s long list of major casualties over the past decade. It remains to be seen how this year plays out, following two contrasting years. In 2024 there were fewer major company insolvencies but the number of stores and jobs affected suggested that these were larger businesses, including Homebase, Carpetright, Ted Baker and Body Shop.
By contrast, 2025 saw a different picture, with almost twice as many failures (57 vs.34) but only half as many stores and jobs impacted as in 2024. The businesses affected were smaller, including LK Bennett, Claire’s Accessories and Bodycare.
Retail Outlook
Retail finances remain fragile as the sector shrinks in financial terms, with almost all key risk indicators significantly worse than two years ago. There are multiple and persistent challenges, which threaten both profitability and viability across the industry, most especially the Iran War. Retailers will need to be nimble, agile and financially disciplined into the foreseeable future.
If you would like to read our previous reports, click here.
If you would like to discuss any of the points in the report or believe you have been affected by any of these issues, you can speak to one of our Directors or Partners who can discuss options with you.
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