UK retailers are counting the cost of an underwhelming Christmas, in which the reluctance of cautious consumers to spend on much outside of their festive food shop pushed some of the high street’s weaker players to the brink of collapse.
In a deluge of trading updates this week, Tesco, Marks and Spencer and Sainsbury’s reported resilient food sales as customers prioritised spending on their Christmas dinner, and on small treats such as mince pies and prosecco, over the festive season.
But the outcome for retailers selling general merchandise — which encompasses everything from clothing to computer games and jewellery — was markedly worse.
Intense competition, declining footfall and weeks of discounting left a few winners, such as Next, and plenty of losers, including fashion chain Primark and Argos, which reported a 1 per cent sales decline. Weaker chains including jeweller Claire’s Accessories and fashion retailer LK Bennett may disappear altogether as a result.
Consumer spending in the run-up to Christmas had been hit by uncertainty from UK chancellor Rachel Reeves’ late November Budget and rising unemployment. The picture painted by retail executives this week indicated that for many chains there was no late year spending rush to rescue the so-called golden quarter.
“Christmas exposed a stark divide in retail,” said Nicholas Found, commercial content director at Retail Economics in London. “Food and value‑led players capitalised on cautious spending, while non‑food is feeling the brunt of fragile consumer confidence.”
The country’s largest supermarket chains highlighted overall growth in sales and in their premium ranges, with consumers willing to purchase higher-value foods for special occasions like the Christmas dinner.
However their headline sales figures have been flattered by persistent food inflation. The British Retail Consortium estimated that in December grocery prices were 3.3 per cent higher than a year ago.
Despite Tesco and Sainsbury’s reporting like for like sales growth of 3.7 per cent and 3.4 per cent respectively, the share prices of both companies fell sharply as investors reacted negatively to evidence of a slowdown in the most important period of the year.
Supermarket executives said consumers showed greater moderation and a propensity to eat more healthily over Christmas in 2025. Above all, though, they were 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 are seeing consumers whose households are in pretty good shape and then you’re seeing a lot of people that are really counting every penny.”
The focus on value was even felt at premium grocer Marks and Spencer, which said sales of its entry level range jumped by a fifth over the 13 weeks to December 27th, albeit that was partly driven by an expansion of the range. The retailer’s strong food sales, up 5.6 per cent on a like-for-like basis, were partly offset by a 2.9 per cent decline in its clothing business.
The penny pinching likely contributed to poor performance at other chains. Sales at Asda, which ironically featured the Grinch in its Christmas ad campaign, sunk by 6.5 per cent in December, according to researcher Nielsen IQ.
The private equity owned supermarket is still suffering from the fallout from a botched implementation of new IT systems.
Analysts were also underwhelmed by the festive performance at discounter Aldi, which has become the UK’s fourth biggest supermarket chain after years of aggressive expansion.
Clive Black, an analyst at Shore Capital, noted that when factoring in the positive effects from Aldi’s store openings and inflation, its 3 per cent sales growth in December implied that its like-for-like sales, a better measure of underlying performance, were in decline.
On Britain’s high streets trading conditions were even tougher. The number of consumers going into shops across high streets, retail parks and shopping centres fell by 2.9 per cent year-on-year in December, according to data from researcher Sensormatics and the BRC.
That trend particularly hurt Primark, which makes almost all of its sales in its shops. The fast-fashion chain’s owner, Associated British Foods, on Thursday described the UK clothing market as “difficult.”
While stronger, more diversified retailers could weather the storm — like Next, which offset weak sales in its stores with strong growth online — chains that were already struggling hit the buffers over Christmas.
In December the owner of LK Bennett filed notice in the high court of its intent to appoint administrators to the upmarket women’s clothing retailer. The company has appointed advisers to run an accelerated sale process to find a buyer.
In the first week of the new year the jeweller Claire’s Accessories and discount chain The Original Factory Shop collapsed into administration, putting about 2,500 jobs in danger. Distressed investor Modella Capital, which acquired both chains last year, blamed “extremely challenging” trading conditions.
The BRC estimated that shop prices, excluding food, were 0.6 per cent lower than the previous year in December. Inflation, weak consumer confidence and higher taxes are “causing many established and much-loved businesses to suffer badly,” the lobby group said.
Found at Retail Economics said the challenges, which include the continued shift of spending online, were drawing a dividing line between retailers which have managed to adapt and those that haven’t.
“We’re seeing a market increasingly defined by polarisation between retailers with sharp positioning, flexibility in business models and a clear understanding of what their target customers value today — and those treading water,” he said.
While retailers are hopeful that falling inflation will boost consumer spending power this year, executives are not budgeting for a strong bounce back in demand. The rising UK unemployment rate, which reached 5.1 per cent in December, the highest level for almost five years, is likely to constrain spending.
“I think the conditions aren’t going to change this year,” said Simon Roberts, chief executive of Sainsbury’s. “Customers continue to look very closely at what they’re spending and we’ve got to make sure we present the best value in that context.”
M&S chief executive Stuart Machin was one of several retailers who vowed to continue investing in product development, even as they face substantial increases to business rates, recycling costs and national insurance bills.
“You have to invest,” said Richard Hyman, a veteran retail analyst. “Given there isn’t any growth [in the market], you have to take it from the guy next door.”