(Happy?) New Year
What does 2025 hold in store for consumer businesses?
Firstly, a warm Happy New Year to all of the Moving Tribes audience. I hope you had a restful break though knowing that many of you work in the retail and hospitality sectors I suspect you also had a busy one. The Moving Tribes gang was lucky enough to spend some time in Japan over the period, and so this piece is illustrated with a picture of my favourite store in the world, Itoya in Ginza, Tokyo - 8 stories of stationery delights.
Let’s kick off the year by thinking about what 2025 may have in store for us. The last few years have delivered their own slew of surprises but the macro-economic picture has been fairly predictable - the immediate impact of lockdown on physical commerce (down) and ecommerce (up), the inevitable reversion to the mean when everything reopened and the wave of inflation which followed were all pretty easy to see coming.
This year, on the other hand, I find harder to read as there are a lot more moving parts both in the UK and globally. Here, then, are a few topics to keep an eye on:
Christmas trading
As long time readers of MT will recall, I’ve written before about how little the usual league tables of Christmas trading performance mean in practice. They are unaudited, often present a partial view and have a (literally) zero correlation to future share price moves.
Nonetheless, they will attract a lot of attention over the next few weeks and will, if we squint at them, give a certain sense of how consumer demand is fairing. I’d already note that the detail of the Christmas results from Next show UK revenue growth of just 2.5% over the period and UK store sales actually down year over year. If Next, arguably one of the best run UK retailers and a traditional powerhouse has delivered figures like that, I suspect a few of the weaker brands will have really suffered.
By and large, the picture of the last few quarters in UK retail and hospitality has been of the strongest players doing OK but the gap between them and the weaker players widening - I’ll be surprised if we don’t see that trend continue.
Economic headwinds
Most forecasts of GDP growth show slightly stronger growth in 25 than we saw in 24. That is almost entirely driven, though, by big increases in spending by the government, using all that lovely new tax revenue.
The impact on consumer businesses is therefore hard to predict and likely to be patchy - if your customers see real income growth because of that increased spending (or because of the very substantial increases in the minimum wage over the last few years) then all might be well, but how the interplay between higher taxes, reduced private sector business investment and increased public sector investment really works out is, to be honest, anyone’s guess at the moment.
Cost pressures
If there was any part of a forecast for 2025 that I think we could make with confidence it is for the return of inflation. As widely reported, our sector has been hit disproportionately hard by the tax increases of the last budget. It seems almost inevitable that some or all of those increases will be passed on in higher prices.
That’s going to be quite a different experience for business leaders, though, than the global wave of inflation which followed the end of the pandemic lockdowns. That was driven by freight costs, supply congestion and other blanket factors which meant that ‘getting away with’ price increases was fairly straightforward because everyone was having to do it.
The cost pressures created by the budget, however, will impact different businesses in different ways. That will mean some having to make very difficult decisions about how to absorb those costs. In particular, the big hike in employer’s NI costs will hurt businesses who employ a lot of people (e.g. High Street retailers) much more than those who don’t (like pureplays). As such, the unintended consequence of the budget is likely to be yet more biasing of the UK tax system against physical retail businesses, precisely the opposite of what we need.
Unknown unknowns - trade
A bet I’d make with even more confidence than the one on inflation is that Donald Trump has never read an economics textbook in his life. If he had, he might have absorbed the message that tariffs and trade barriers just end up making everyone poorer.
Sadly, that message has clearly passed him by, and so we are likely to see a complicated and chaotic set of impacts on global trade this year. How that impacts businesses here in the UK is again too tricky to forecast, though. A scenario where China responds to US antagonism by looking to invest and trade more with the UK, for example, might be a net positive. But there are plenty of other scenarios where all that happens is that all imports become more expensive creating yet more inflationary pressures.
And again, the net impacts will vary for different sectors and even individual businesses.
Over the course of this year here at Moving Tribes I’m going to do my best to respond to all of that. We’ll run a multi-part series, for example, on how to trade your way out of trouble in a difficult economy. We’ll also explore some more about what makes a great retail leadership team and how we can all be the best leaders we can.
I’m easy to get in touch with. If you are reading this on email, replying works and comes straight to me. If not, I’m easy to find on LinkedIn and Bluesky. If there are topics you’d like to see me cover here at Moving Tribes, do shout - I get regular feedback from readers and all of it is appreciated.
And finally, of the 3m or so people working in UK retail and hospitality businesses there are still an isolated few who don’t yet subscribe to Moving Tribes - if you know any of them, send them this article and help them be even better prepared for 2025!