The Retail Think Tank - October Release

Retail Health

Summer lookback

Overall, retailers were pleased with performance over the summer months – with total retail sales up 3.1%[1]. Food & drink led with a 4.7% rise, while non-food retail saw a modest 1.8% uplift. Good weather boosted in-store sales, with footfall on high streets in August up 1.1% year on year.[1]

The winning categories this summer include electronics, home improvements, fashion, health & beauty and gardening - largely driven by the sunny weather.

Most retailers enjoyed the summer boost, although some weaker players were in the spotlight, with store closures at River Island, Poundland and Claire’s, whilst value fashion also struggled under pressure from Chinese imports and the rise of second-hand marketplaces.

“We’ve seen an uptick in credit losses and write downs compared to last year – driven by an aggregation of macro factors, the delayed effect of more people getting pulled into new mortgage rates as well as the ongoing cost of living crisis”

James Sawley, Head of Retail & Leisure, HSBC & RTT Member

“The effectiveness of retail business models comes and goes, in response to competition, but our biggest and best managed retailers, like Next, have adapted and thrived.”

Nick Bubb, Retail Consultant, Bubb Retail Consultancy Ltd and RTT member

Retailers continued to face high costs over the summer. Employment and business rates remain elevated following April’s changes; energy prices and many commodity prices remain high and new taxes like the packaging levy have been an additional burden.

Inflation also picked up again over the summer months at nearly 4% against a 2% target, with food price inflation climbing to 5.1% in August, and clothing prices seeing it’s first increase for in some time [2].Moving into September, the Bank of England base rate remained unchanged at 4% as the economy continued to show signs of weakness.

Q4 look forward to the Golden Quarter

Last year we saw the “strongest golden quarter for retail health since the pandemic” with Cyber Monday experiencing the highest average order value in 4 years,[3] So what are we expecting for this year?

What are consumers thinking?

“Consumer confidence remains negative and shoppers are pessimistic about their future personal finances [4]and this caution could impact some discretionary spend in Q4” Mike Watkins, Head of Retailer and Business Insight NIQ UK and RTT member.

Over half of consumers believe the UK economy is worsening, and only 17% expecting improvement [5]and we’re seeing the impact on big ticket items as 39% of consumers say they don’t plan to spend on any major items for the rest of the year.[5]

“Challenging macroeconomic factors, including a weak housing market and real wage growth declining after 2 years of growth, means we should expect the cautious consumer to continue” Charles Burton, Director, Oxford Economics and RTT member. And with looming hikes in energy bills and uncertainty around the Autumn Budget, alongside continued global geo-political turbulence.

But what does this mean for retailers?

As we go into the key quarter, the RTT expects the level of sales growth to slow compared to the summer quarter with predicted 3.5% growth in food and 1% in non-food. And it will require the effort of retailers to attract consumers over key shopping events of Black Friday, Cyber Monday and Christmas.

Annual real total wage growth hit 1.1% in April to June 2025, down from 1.7% in the previous quarter[6], but more immediately disposable income fell for 60% of UK households last month marking the first decline for middle-income families since September 2023.[7]

Retailers will be expecting headwinds going into the Golden Quarter, with Next highlighting recently that it expects UK employment opportunities to continue to diminish.

The late timing of the Autumn Budget announcements, on 26th November, will add to uncertainty for consumers and may delay spend.
People are addicted to pricing and promotions - the dopamine hit of getting a good deal! Alongside learnt behaviours over the last few years means shoppers will cost savvy and shop around .
We are unlikely to see another interest cut this year, as well as more people going on new higher mortgage rates increasing mortgages around £75 pcm and private rents over 5% higher.[8]
The UK unemployment rate is increasing, estimated at 4.7% in April to June 2025, up 0.2% on last quarter[9]c.80% of unemployment is coming from retail & hospitality[8]
Price of goods (CPI) is increasing, and people notice price increases far more than they recognise pay rises giving a sense of being worse off (38% of consumers cite increased cost of groceries as a reason why they believe the UK economy is worsening)[5].

And for most retailers’ costs will continue to be high in terms of employment costs, business rates, energy bills and commodities. Plus:

“Technology spend remains high as retailers are replacing core ERP systems, managing legacy technology and doubling down on loss prevention technologies. They’re also thinking about how they can use AI and new technologies – such as smart trollies and Electronic Shelf Labels (ESLs) – to stand out from competitors, improve throughput at checkouts whilst also mitigating fraud and shrink” Miya Knight, Retail Director, Zendu Contracting Services Ltd & RTT Member.

The cost of theft ,including violence, is trending upwards and particularly acute over the Golden Quarter as stores get busier.
For those with US operations, tariffs starting to impact sales.
And the new EPR (Extended Producer Responsibility) tax policy on packaging is starting to sting.

“However, retail is constantly evolving and retail failures create opportunities for successful retailers to expand and take share.

To cite just a few; Lidl and Aldi in food & grocery (some of which are replacing Poundland stores on the high street); fashion retailers Uniqlo and Mango; Sephora in beauty, IKEA and Primark in homewares – and many more. Though technology and costs are reducing employment, the replacement of poor retailers offers other opportunities” Maureen Hinton, retail consultant and RTT member.

What specific strategies do we expect to see from Retailers in the key shopping period?

The RTT is expecting retailers to use more strategic discounting this Golden Quarter than last, in many cases enabled by AI forecasting and personalisation.

Last year the most popular discount strategy used by over 40% of retailers was “up to % off” on selected products, with retailers who offered 10% off seeing a ~60% conversion rate at checkout, while those offering 80% off reached nearly 78%.[10]

But retailers are planning more mixed strategies this year:

Hyper-personalisation – “Generic discounts are out. Shoppers want deals that actually matter to them; retailers should be using AI-powered tools to tailor messaging, product recommendations, and even pricing in real time.” Natalie Berg, Retail Analyst NBK Retail and RTT member
Playing to loyalty schemes by getting customers to “sign up & register for get first access to deals before go live” .
Applying varying promotions with “up to x% off” messaging on hand-picked items (not a standard 10% off everything) with higher discounting on less popular or higher priced items.
Early but lower discounting strategy – to protect margin as far as possible whilst still driving high sales volume and over a longer period.
Alternate promotion days such as “Fake Friday” on the Friday before black Friday and “Phoenix Day” a month before Black Friday… and even alternatives like “green Friday” where retailers plant a tree with each purchase.
And for some retailers they’re deciding not to participate at all.

The first AI driven Golden Quarter – what will consumers and retailers do differently

How will consumers use AI to shop differently?

This time last year we were right at the start of an AI journey, with many of us starting to dabble in it, but few of us actually using it regularly. Fast forward 12 months and it’s a very different story. We’re in the era of supercharged consumers who are more empowered than ever with AI assistants, price trackers, social media and online platforms – being used for inspiration, efficiency, cost savings…

“Write me a shopping list for Christmas lunch”

“Find me a present for my dad who likes cars”

“Tell me what shoes I should wear with this dress for a party”

From using AI assistants and price trackers to find you the best deals and discounts, through to discovering new items and suggesting gift ideas for that person who has everything… or even writing your shopping list (and it won’t be long until it’s actually doing the buying on your behalf),we’re expecting this to be the year AI really gets put to the test from a shopping perspective.

But what are the top 3 things on the mind of a consumer? Price, Quality and Convenience – with 65% of people saying price has been one of their top 3 drivers of spend for everyday items, followed by 50% for quality and almost 30% for convenience, [11]and you guessed it, AI can help with all three of them.

Once consumers are sure that the quality is as required, and they can get hold of it as conveniently as they need it, they’re still very price sensitive. And when it comes to price, promotions are key. In an age where AI is becoming more important, humans still transact the deep-rooted human behaviours of wanting both newness and the dopamine hit of feeling we’ve got a good deal.

With Black Friday now going on for days (even weeks!) it gives people the chance to shop around and be educated before they spend their money. So, retailers not only have to ensure price transparency and consistency, but you have to give them a reason to spend and help them know if its right for them… and then keep them loyal and not just jumping from shop to shop based on where they get the best deal.

“Retail CEOs tell us that acquiring shoppers through promotions is the easy bit, keeping them is hard as competitors woo them away” Linda Ellett, Head of Consumer Retail & Leisure, KPMG and RTT Chair.

And whilst lots of us might think AI is limited to being online and through digital channels, technology is increasingly being used in store to enable the potential use of AI. We’re already seeing retailers combine online and offline worlds… for example using your smart phone in store to scan items for information to a personalised experience and personalised promotion. And whilst we’re not there yet but it won’t be long before we see things like personalised advertisements on digital screens in store.

But AI isn’t for everyone. Different demographics and different generations have different preferences on how they want to search and shop – so AI isn’t here to totally replace, it’s here to add to.

How will retailers use AI sell differently this year?

Over the past year, organisations have been working on their own AI journey; navigating the most effective solutions to support their business and upskill their teams.

We’re expecting retailers to be using AI during the Golden Quarter in a number of different ways.

From understanding your customer and their preferences better, through to more targeted personalisation; tailoring offers, messaging, recommendations and interventions (such as sending discounts when you leave the cart), through to inventory management and stock level optimisation by using AI for forecasting to ensure enough stock for the promotional period. And for more strategic discounting moving away from guesswork and reactive tactics and instead aligning promotions to slower moving items.