Unlocking retail profitability: transforming a cost crisis into a competitive edge
The numbers behind the £5.6bn cost surge, and the mitigation strategies UK retailers are using to protect profit.
Key findings
- UK retailers face an expected £5.6bn increase in operating costs for the industry in 2025/26.
- Absorbing costs is set to cut pre-tax profit by £1.76bn, a 6.7% year-on-year drop in industry profits.
- 100% of large retailers agree AI enhances frontline customer service interactions, compared to 70.6% of small retailers.
Summary
UK retailers are contending with a £5.6bn rise in operating costs in 2025/26, driven by higher wages, National Insurance Contributions, and business rates, all against weak economic growth and rising customer expectations. Leaders need to unlock efficiency and productivity gains across frontline operations to protect profitability without eroding customer experience.
This report quantifies the true impact of the Budget on UK retail and reveals how peers are responding. It draws on modelling and analysis by Retail Economics, a survey of 100 UK retail businesses with turnover between £10m and £5bn conducted in Q1 2025, and an interview with Paul Rowland, Retail & Technology Director at Home Bargains.
What you’ll learn
- A breakdown of projected cost increases from wages, tax contributions, and business rates by retailer size and sector.
- Benchmark data on how peers are adjusting pricing, restructuring operations, and investing in productivity.
- How Home Bargains balances cost pressure with continued investment in the frontline.
