It was a “disappointing” January for discretionary UK retail according to advisory firm BDO’s latest High Street Sales Tracker (HSST).
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It said in-store discretionary sales grew by 3.2%, compared to a negative base last year when total like-for-like retail sales had fallen by 0.8% and in-store sales suffered an even more significant fall with 4.2% drop. That means the latest January figures didn’t didn’t recover the losses of this time last year.
The best news in January 2025 came for online sales as they saw “significant growth”, although this was driven in part more by poor January weather than by any ultra-enthusiasm on the part of consumers.
The worst news overall was that “fashion and homewares bricks and mortar sales performed particularly poorly against negative bases”.
So, let’s look at the details. Total retail sales in discretionary spend categories grew by 7.1% in January, but “concerns remain that 2025 is set to be another difficult year for retail as rising costs continue to mount”, BDO’s HSST said.
As mentioned, online outperformed, rising 15.5% year on year while that not-good-enough 3.2% in-store increase after last January’s larger fall came as BDO said there has been “a large drop in volumes over the past two years”.
Despite plenty of big-name fashion and homewares retailers reporting a good festive season and ongoing strength in the New Year, their categories were weak overall last month.
Yes, the HSST showed their sales in-store rose 3.3% and 3.4%, respectively. But in the previous January they’d been down 6.7% and 10.1%, so it was another story of the latest increase looking good on the surface but failing by a wide margin to recover the deficit of the previous year.
BDO said January’s poor weather may have contributed to mixed footfall on the high street and driven a better result for online sales, but that the numbers were “also a continuation of the sector’s overall poor performance in 2024 and a disappointing final Golden Quarter”.
Sophie Michael, Head of Retail and Wholesale at BDO, commented: “These results may seem positive on the surface, but the underlying numbers show that the weak growth in the run up to Christmas has continued into the New Year. While many retailers may have seen a rise in sales through the release of some of the pent-up consumer spending that didn’t come through before Christmas, January trading for discretionary spend requires heavy encouragement through discounting; this delayed spending will no doubt have a significant impact on already thin margins.
“The sector has been challenged for some time by the impact of significant cost increases, which will continue to mount throughout the year, particularly post the implementation of the changes in the budget this April. Raising the thresholds for National Insurance contributions will disproportionately affect retailers, who tend to have large workforces with lower average earnings. Add in increases to the National Living Wage, business rates and the Plastic Packaging Tax all coming together and at fast pace, their thin margins will be under even more pressure.
“Retailers need to find a way to balance the increased cost of doing business while investing in product development, customer service and underlying technology, like AI, that will maintain their competitiveness. They need clear visibility on how their costs will increase to identify effective actions to mitigate the impact. This includes clarity over how their supply chain costs will rise, with many of the businesses they rely on being subject to some of the same pressures as themselves. The sector already saw a high number of job losses in 2024 and retail store closures; with the oncoming cost increases, these numbers are unlikely to ease in 2025.”
