Jingle Bell Rock – And A Hard Place – For U.K. Retailers And Consumers This Christmas

Clued-up-but-constrained U.K. consumers are set to spend almost 5% more during November and December this year than in 2024, but retailers will struggle to turn that into higher profits as regulatory, trade, employment, and inflationary costs remain elevated.

With the government's Budget statement scheduled for Wednesday, 26 November – two days before Black Friday – any policies materially affecting consumers' pockets could dampen demand or boost consumer confidence at a critical moment for retailers.

AlixPartners' U.K. retail Christmas sales forecast for the 2025 holiday period totals £99.9bn, a 4.9% increase on last year. However, adjusted for inflation, the increase falls to 1.9% with total sales at £97.1bn.^*

Consumers stay focused on value, and are increasingly selective

The Black Friday weekend will be pivotal again this year, but consumer sentiment is shifting on this shopping event, and the timing of the Budget could further limit spending during this key weekend.

This year, 35% of consumers say they're less interested in Black Friday and its sister event Cyber Monday, citing misleading discounts and "sale overload". U.K. consumers are still forecast to spend £3.9bn over this period, up 2% from 2024.

That spending is likely to focus on tech products, gifts, and clothing, with younger shoppers at the head of the digital queue – only 31% of baby boomers say they'll be spending during Black Friday, versus 81% of Millennials and 80% of Gen Z.

Clothing, household goods, and non-store retail are forecast to be segment winners

Consumer confidence has been fragile in 2025, falling further in September before an uptick in October. Impending tax concerns and the persistence of higher costs will heighten shoppers' selective, price-conscious behaviour, and they are expected to direct spend most towards clothing and household goods. These segments are forecast to grow by more than 3% year-on-year, after accounting for inflation.

The mild weather during autumn has extended seasonal apparel sales, and leveraging value-driven collections and promotions is expected to help sustain demand for clothing during the festive season. Continued demand for essential household items – even when discretionary spending is low – will support the performance of household goods, with savvy shoppers waiting to act on big-ticket discounts.

Growing cost challenges are creating margin pressure

Tariffs, regulatory costs, and raw material inflation mean that the expected increase in certain segment spending will be realised on price rather than volume.

In food retail, for example, elevated food price inflation, the Extended Producer Responsibility (EPR) and Deposit Return Scheme (DRS) are coming into force, in addition to higher labour costs this year and greater post-Brexit import costs. These challenges mean an increase of just 0.5% is forecast for food spending this holiday season, after factoring in inflation.

Cost challenges are faced by all retailers, although some segments will be better placed to deliver real revenue growth. Clothing's nominal and real growth rates are expected to track closely, despite rising global tariffs, supply chain disruption, and an increasing reliance on online channels as high-street footfall remains muted.

Essential versus discretionary remains a central theme: household goods will be boosted by smaller, essential purchases with lower volumes, while big-ticket purchases will push up sales numbers during discounting periods.

Strategies for staying competitive under cost pressure

The multi-faceted cost challenges mean retailers need to be fully focused on maximising like-for-like sales volume by deliberately taking share from competitors this year.

Retailers must continue to work on refining the business fundamentals: the brilliant, non-negotiable basics that ensure the delivery of the right product, at the right price, in the right place, at the right time. Strengthening these core capabilities, augmented by data analytics, will enable agile, localised decisions to be quickly executed.

Differentiation will also remain key at a time when consumer budgets remain tight and notable purchases will be carefully evaluated. Here, smarter tactics can yield sharper results online and in-store, boosting footfall, conversion rates, and basket value. AI-driven personalisation, enhanced customer engagement, and innovation across physical and digital channels are all critical in winning customer loyalty and maximising every interaction.

Finally, with one eye beyond the festive season, retailers must prime themselves to make the bigger bets, should market challenges present such an opportunity. Growth through consolidation may become a viable option for some brands, with proactive strategies including mergers and acquisitions, flexible partnerships, and restructuring, all of which can build scale, improve market access, and increase organisational agility for 2026 and beyond.

Competition for wallet share remains as high as ever this Christmas. Retailers must strike the optimal balance between competitive pricing and careful cost control to not only capture the attention of canny yet cash-strapped consumers but also drive the biggest bottom-line benefit this festive season.

^*Covering the period from 1 November to 31 December, our Christmas Retail Sales Forecast excludes motor vehicles, fuel, and restaurant and drinking establishment sales. The forecast is based on proprietary AlixPartners analysis of ONS retail and consumer confidence data.

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