UK retailers are counting the cost of a bad Christmas, where wary consumers’ reluctance to spend big outside their festive food shop has pushed some of the high street’s weaker players to the brink of collapse.
In a flurry of trading updates this week, Tesco, Marks and Spencer and Sainsbury reported strong food sales as customers prioritize spending on their Christmas dinner, and smaller treats such as mince pies and prosecco, over the festive period.
But the consequences for retailers who sell general merchandise — which covers everything from clothing to computer games and jewelry — are even worse.
Fierce competition, the reduction of measures and weeks of discounts have left some winners, such as Next, and many losers, including the fashion chain Primark and Argoswhich reported a one percent decline in sales. Weaker chains including jeweler Claire’s Accessories and fashion retailer LK Bennett could all but disappear as a result.
Consumer spending in the run-up to Christmas was hit by uncertainty from UK chancellor Rachel Reeves’ late November Budget and rising unemployment. The picture painted by retail executives this week shows that for many chains there is no late-year spending rush to save the so-called golden quarter.
“Christmas reveals a huge divide in retail,” said Nicholas Found, commercial content director at Retail Economics in London. “Food and value-added players are taking advantage of cautious spending, while non-food is feeling the brunt of weak consumer confidence.”
The country’s largest supermarket chain highlighted overall sales growth and their premium ranges, with consumers willing to buy higher value foods for special occasions such as Christmas dinner.
However, their headline sales figures have been flattered by persistent food inflation. The British Retail Consortium estimates that in December grocery prices were 3.3 percent higher than a year ago.
Despite Tesco and Sainsbury reporting sales growth of 3.7 percent and 3.4 percent respectively, the share prices of both companies fell sharply as investors reacted negatively to evidence of a slowdown in the most important time of the year.
Supermarket executives say that consumers show more moderation and a tendency to eat more healthily at Christmas in 2025. But above all, they are focused on getting value for money.
“Value continues to be a key priority as customers seek to make their money go further,” said Ken Murphy, chief executive of Tesco, the country’s largest retailer. “There’s no doubt that consumer sentiment is mixed … you see consumers whose homes are doing well and then you see a lot of people counting every penny.”
The focus on value was even felt at premium grocer Marks and Spencer, which said sales of its entry-level products jumped for the fifth time in the 13 weeks to December 27, albeit partly driven by range expansion. The retailer’s strong food sales, which rose 5.6 percent on a like-for-like basis, were partially offset by a 2.9 percent decline in its clothing business.
Penny pinching probably contributed to the poor performance of other chains. Sales at Asda, which ironically featured the Grinch in its Christmas ad campaign, fell 6.5 percent in December, according to researcher Nielsen IQ.
The private equity-owned supermarket is still suffering from the fallout from a failed implementation of new IT systems.
Analysts were also disappointed by the festive performance of discounter Aldi, which has become the UK’s fourth largest supermarket chain after years of aggressive expansion.
Clive Black, an analyst at Shore Capital, noted that when taking into account the positive effects from Aldi’s store openings and inflation, the 3 percent sales growth in December meant that its comparable sales, a better measure of underlying performance, were declining.
On Britain’s high street trading conditions are even more difficult. The number of consumers going to shops across high streets, retail parks and shopping centers fell by 2.9 percent year-on-year in December, according to data from researcher Sensormatics and the BRC.
That trend has particularly hurt Primark, which does almost all of its sales in its stores. The owner of the fast-fashion chain, Associated British Foods, on Thursday CEBU the UK clothing market as “difficult.”
While stronger, more diversified retailers will weather the storm – such as Next, which will offset weak sales in its stores with strong growth online – already struggling chains have hit Christmas buffers.
In December owner LK Bennett filed a high court notice of its intention to appoint administrators at the upmarket women’s clothing retailer. The company has appointed advisers to run an expedited sales process to find a buyer.
In the first week of the new year jeweler Claire’s Accessories and discount chain The Original Factory Shop collapsed into administration, putting around 2,500 jobs at risk. Distressed investor Modella Capitalwhich acquired the two chains last year, blamed “extremely challenging” trading conditions.
The BRC estimated that shop prices, excluding food, were 0.6 percent lower than last year in December. Inflation, weak consumer confidence and higher taxes are “causing many established and well-loved businesses to suffer,” the lobby group said.
Retail Economics’ findings say the challenges, which include the continued shift to online spending, are drawing a dividing line between retailers who have been able to adapt and those who haven’t.
“We see a market increasingly defined by polarization between retailers with a sharp position, flexibility in business models and a clear understanding of what their target customers value today – and those treading water,” he said.
While retailers hope that falling inflation will boost consumer spending power this year, executives aren’t budgeting for a strong bounce back in demand. The UK’s rising unemployment rate, which reached 5.1 percent in December, its highest level in nearly five years, is likely to curb spending.
“I don’t think conditions will change this year,” said Simon Roberts, chief executive of Sainsbury’s. “Customers continue to look more closely at what they spend and we need to make sure we’re presenting the best value in that context.”
M&S chief executive Stuart Machin is among a number of retailers who have vowed to continue investing in product development, even as they face huge rises in business rates, recycling costs and national insurance charges.
“You have to invest,” said Richard Hyman, a veteran retail analyst. “Because there isn’t any growth (in the market), you have to take it from the person next door.”