KPMG Private Enterprise Barometer 2025

Independent retailers show resilience for the future

Linda Ellett, Head of Consumer, Retail and Leisure, KPMG in the UK

The prospects for retail in 2025 are hard to call. Despite several diverging indicators and an unpredictable economic year ahead, our latest KPMG research indicates reasons to be positive.

Our KPMG Private Enterprise (KPE) Barometer, asked 1,500 private business owners and leaders (including around 250 in the retail sector) about their confidence for the future; finding that over 90% of them are optimistic, with plans to diversify and expand. 2 in 3 private retailers are planning to launch new products and services and nearly 7 in 10 are aiming to enter new markets.

Whilst positive news, this level of confidence may be surprising given the tough trading conditions in the UK High Street, as well as the increased employment impacting retailers in the wake of the Budget.

However, perhaps their confidence is underpinned by the resilience of independent retail businesses over the past few turbulent years. Through the upheavals of Brexit, the pandemic and then the cost-of-living crisis, navigating challenging circumstances isn’t new in the world of retail.

Sales volumes have been challenged for many months now and Christmas didn’t quite live up to expectations. The KPMG-BRC Retail Sales Monitor shows that over the three months of the ‘golden quarter’ (October-December) volumes were almost flat against the prior year.

There is only limited cheer to be gained from assessing the wider economic outlook. KPMG’s latest UK economic forecast predicts GDP growth of 1.7% in 2025 which is a doubling from the 0.8% seen in 2024. However, the good news largely ends there, with our Chief Economist predicting that inflation will remain elevated above target and that interest rate cuts will only be gradual and cautious.

Meanwhile, consumer sentiment is mixed. A pulse survey we conducted amongst 1,500 businesses in November 2024 showed that nearly three times more people felt secure (57%) than insecure (21%) about their financial situations as 2024 ended. In addition, six in ten said they were able to spend freely when it came to their everyday discretionary spend. However, the results also indicated savvy shopping behaviours would continue, as four in ten said they felt that the economic outlook was worsening. Only a quarter believed it to be improving - casting some uncertainty over how much consumers will loosen the purse strings in 2025.

It is worth remembering, however, that the economic outlook is tinged with uncertainty, especially so in recent times. So, it is promising that our KPE Barometer finds independent retailers in good heart. Notably, their balance sheets are strong, with over half (52%) saying that they plan to finance diversification and expansion through their own internal funds. Strikingly, 40% of retailers say that acquisitions could be a route to growth, which is noticeably higher than the all-sector average of 32%. Could we see a spate of corporate activity in the retail market during 2025?

In terms of their investment priorities, you may not be surprised to hear that technology was the most widely cited area (62%), followed by workforce (55%) and sustainability (51%). Clearly, technology including AI is instrumental to operating a customer-centred, seamless commerce model. There is no doubt that we will see retailers increasingly utilising customer data and AI technology to deliver increased personalisation in 2025.

Investment is also needed to upgrade legacy systems that are becoming obsolescent – this was indicated as a priority by 53% of private retailers, much higher than the all-sector figure of 38%.

Workforce remains critical because even in an age of automation and online purchasing, retailers depend on their staff to deliver service and represent the brand. However, employment has become a complex area, with persistent skills shortages and rising costs. Costs are especially top of mind following the Budget given the increase to employers’ National Insurance contributions. With part-time workers also coming in scope, this is an aspect that could disproportionately affect retailers. Combined with an increase to the National Minimum Wage, and a forthcoming government package to strengthen workers’ rights, running a workforce is set to become harder and more expensive. Half of retailers say they are confident they can recruit the talent they need – but four in ten are planning on reskilling some of their existing workforce and 45% are reviewing their Employee Value Proposition to help with both recruitment and retention.

Sustainability is another priority for retailers, although investment costs shouldn’t be passed onto consumers who might not be willing to pay more. 58% of private retailers say they are planning to prioritise the use of sustainable materials and (63%) are focusing on their supply chains – recognising that a whole of value chain approach is needed to meet sustainability goals.

Our research indicates that while conditions remain challenging, private enterprises in the retail sector retain their ambition and have a clear set of investment priorities to guide their growth.

For small and independent retailers, keeping a strong focus on quality, value for money and a compelling customer experience has become key to not only thriving, but also simply surviving– and this stands them in good stead for the future.

Looking to find out more about what’s top of mind for privately owned business leaders? Read our KPE Barometer 2025 report here.