Talk about profound challenges: UK retailers are under pressure to manage complex financial and logistical operations, strategically adopt technology, navigate increasing regulatory requirements and deliver exceptional customer experiences across multiple channels — all while managing shrinking margins. This guide aims to help retailers chart a path towards meeting 15 common business challenges.
The State of the UK Retail Industry
There are more than 300,000 retail businesses in the UK. In 2024, they employed 2.6 million workers (10% of all UK jobs) and generated £114.7 billion in net economic output (approximately 4.4% of GDP) from £517 billion in annual turnover.
But the sector has been in “permacrisis” since 2008. In the aftermath of that year’s financial crisis, rising costs, particularly rents and rates, and the shift to online shopping resulted in widespread store closures and job losses. Since the Covid pandemic, high inflation and the “cost of living” crisis have taken a further toll. Sales volumes fell in the fourth quarter of 2025, as shoppers delayed purchases and cut back on non-food expenditure.
As costs increase due to labour shortages, supply chain disruptions and rising taxes, profit margins — which have always been tight — are being squeezed tighter. Some businesses are struggling to survive: 34 retail companies ceased trading in 2024, affecting 7,537 stores and 55,914 employees — the highest number of store closures in a calendar year since records began in 2007.
However, despite these headwinds, the sector is growing again. After two consecutive down years, the £517 billion in total retail sales for 2024 topped 2023 by 1.4%. And, despite the fourth-quarter fall, full-year 2025 retail sales grew 4% to more than £536 billion, according to the latest figures from the Office for National Statistics. Online sales have grown particularly strongly, accounting for approximately 28.6% of all retail sales in November 2025. The UK is Europe’s largest ecommerce market.
Troubleshooting 15 Common Retail Challenges
To overcome the hurdles presented by such a difficult trading environment, UK retailers need every advantage they can find. Here are 15 principal challenges facing retail businesses today and potential strategies for dealing with them.
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Recruiting and retaining talent
Approximately 170,000 retail jobs disappeared in 2024 (42% more than 2023) and over 200,000 are estimated to have gone in 2025. Retail employment shows a long-term decline, falling from over 3 million in 2019 to the 2.6 million of 2024.
Several factors contribute to this shrinkage. Brexit caused a reduction in EU workers in the UK, particularly in logistics and distribution. Many workers left retail during the pandemic and have not returned. The UK’s ageing workforce is resulting in experienced workers retiring without suitable replacements. Retail is also competing with other sectors for talent, a problem exacerbated by the low-paid nature of many retail roles.
Operationally, retail businesses are finding it difficult to maintain existing service levels with reduced staff. The burden on remaining employees may be contributing to the loss of experienced workers from the sector. Many retail companies are finding it difficult to fill skilled positions, particularly in warehouse management, logistics and inventory planning. The cost of recruiting and training new staff is significant and cannot fully compensate for lack of institutional knowledge and customer relationships.
- Solution strategies: Many retail businesses are raising wages and improving compensation packages. However, this raises costs, which poses risks for businesses with thin margins. Other solutions being adopted include offering better working conditions, flexible working arrangements, higher investment in training and development, and clearer career progression pathways. Cross-training staff for multiple roles enables more flexible deployment and can improve career prospects. Businesses are also investing in technology to reduce the need for manual labour by automating routine tasks.
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Mitigating supply chain instability
Instability in supply chains has led to many UK retailers re-evaluating or modifying their supply chain strategy.
Brexit is proving costly for UK retailers: 70% of UK companies report increased supply chain costs related to new regulations post-Brexit. UK retail sales to the EU have fallen by £5.9 billion since 2019, with non-food exports, particularly clothing and footwear, dropping 18%. At the same time, retail costs have increased due to additional customs paperwork and declarations and value-added tax (VAT) complexity in cross-border trade. New checks implemented in July 2025 are adding further cost, while evolving EU and UK product regulations create uncertainty.
Other significant drivers of supply chain instability are global conflicts, labour shortages in logistics, extended and uncertain shipping times and volatile transportation costs.
Supply chain instability has profound effects on business operations. Supply chain failures can mean lost sales due to stockouts, but increasing inventory buffers ties up capital and increases business costs. Extended shipping timelines can mean long waits for materials and parts, while inaccurate timelines and difficulty tracking containers and shipment create uncertainty. Mitigating these risks by ordering further in advance increases financing risk and reduces business flexibility.
- Solution strategies: Diversifying supply chains reduces reliance on single suppliers or regions, while nearshoring reduces transportation and geopolitical risk. Investing in supply chain visibility technology, such as blockchain, helps reduce the uncertainty arising from complex supply chains and extended shipping times. Supply chains can be future-proofed by building strong collaborative supplier relationships, adopting just-in-case inventory strategies (rather than just-in-time) and using predictive analytics to forecast demand.
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High labour costs
Competition for workers is driving above-inflation wage rises, with average weekly earnings growth in the hospitality industry exceeding 5% since 2023. Government policies are also pushing up labour costs, with increases in employer National Insurance contributions and national minimum wages in 2025, and further increases in national minimum wages scheduled for 2026. Pension auto-enrolment contributions and holiday pay entitlements add to the costs of employment, along with rising training costs.
Labour costs are typically a significant percentage of retail operating expenses and can be difficult to pass on to customers in a competitive marketplace. Retailers need to offer competitive wages to attract and retain talent but are under pressure to control costs to maintain profitability.
- Solution strategies: Many retailers are working to reduce staffing requirements by introducing self-service technologies (self-checkout, mobile apps) and automation, where economically justified. They’re also optimising scheduling with workforce management technology and AI-powered workforce planning, adopting flexible staffing models (part-time and zero-hours, where appropriate) and cross-training staff for multirole flexibility.
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Rising raw material prices
Raw material prices for UK businesses have been rising since 2020, driven by post-Brexit supply chain issues, global instability, increased demand and labour shortages. There have been significant cost hikes for items like timber, steel and agricultural products. Although some input costs, such as crude oil, have been falling, businesses expect prices to continue to rise overall through 2026.
Smaller retailers may have little option but to pay higher prices demanded by suppliers exposed to rising raw material prices. If retailers can’t pass these higher costs to customers, then either cost savings must be found, or profit margins will be compressed. Raising prices risks sales volume loss, while discounting and other promotional activities to increase volumes can put further pressure on profit margins.
- Solution strategies: Retailers can use long-term supplier contracts to lock in pricing, or shop around for best value suppliers. To protect margins, retailers can shift their product mix towards higher-margin items, or opt for strategic pricing (selective price increases, shrinkflation alternatives). Cost savings can be found from operational efficiency improvements and waste reduction initiatives.
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Meeting customer expectations
Retail customers want it all: they expect fast, easy, and convenient shopping experiences, personalised recommendations, low prices and high product quality. 87% per cent of millennials say convenience is very or extremely important when shopping. They want to shop on the move using mobile devices and checkout with a single click. They demand fast, flexible delivery options, a streamlined returns process and excellent customer service across channels. Online, customers expect delivery and returns to be both fast and cheap: 42% are put off shopping by limited free delivery options and 41% by lack of free returns.
Increasingly, customers are looking for personalised product recommendations and marketing, as evidenced by the 60% who express a positive view of tailored content. Customers want recognition across channels, real-time inventory visibility and consistent pricing and promotions.
Two-thirds of shoppers say they prioritise price over brand when making a purchase. However, they are also unwilling to sacrifice quality. They are looking for value for money and expect both competitive pricing and a good experience.
- Solution strategies: Information transparency is key. Provide clear information on product characteristics, ingredients and sustainability credentials, clear pricing with no hidden fees (drip pricing is being regulated) and accurate stock availability information across channels. Focus on efficiency and cost control in delivery and returns processes. Leverage technology to provide a seamless customer experience.
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Managing economic pressures
UK businesses face twin economic threats: high inflation and economic uncertainty. Although inflation has fallen from its peak of 11% in October 2022, it is expected to remain above the Bank of England’s 2% target through 2027. Geopolitical tensions and the ongoing impact of Brexit are weakening economic growth, raising the risk of recession. The persistence of inflation and a gloomy economic outlook make the future trajectory of interest rates uncertain. Households facing high inflation and mortgage rates are cutting back discretionary spending and delaying purchases. There is a shift to value-seeking behaviour, with discounters gaining market share.
The tax burden on businesses is increasing. Business rates relief was cut from 75% to 40% in April 2025, resulting in a significant cost increase for many businesses. Higher employer National Insurance contributions and rises in national minimum wages have significantly increased employment costs. Further rises and phasing out of lower minimum wages for young people are slated for 2026.
- Solution strategies: When consumer demand is weak and the economic outlook uncertain, operational efficiency and resilience come to the fore. Businesses become laser-focused on controlling costs while diversifying revenue streams and supply chains. Maintaining financial flexibility with cash reserves and credit lines helps businesses ride out adverse demand swings, while scenario planning for different economic conditions prepares businesses for different possible eventualities. Agile business models that can adapt quickly, regular re-forecasting, disciplined pricing and attractive, well-diversified product mixes are key to navigating the UK’s stormy economic waters.
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Providing a consistent omnichannel experience
Customers blend physical and digital shopping, so they expect retailers to provide a unified experience across all channels. But this creates profound technical and operational challenges for the retailers. On the technical side, online and offline systems must interact seamlessly; inventory records must be accurately maintained in real time and visible across all channels; there must be consistent pricing and promotions across channels; unified customer profiles and data across all channels; and order management for complex fulfilment (ship from store, BOPIS, etc.).
On the operational side, inventory allocation must be managed across all channels, staff need to be trained to operate across multiple channels and returns must be handled efficiently across all channels. Last-mile delivery logistics need particular consideration, since failures here can significantly affect the customer experience.
- Solution strategies: Delivering a consistent omnichannel experience requires significant investment in technology, including point-of-sale (POS) systems, warehouse management systems, order management systems, CRM platforms and integrated ERP systems. Investment in people is also needed, from hiring skilled staff to retraining existing staff. Redesigning business processes to deliver efficiency at low cost will help protect margins while retaining customers.
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Gaining customer trust
British shoppers are increasingly research-focused and value-driven. They want to know they are getting a fair deal. Trust in UK retail is often won or lost at the point of delivery and returns. Consumers, particularly younger ones, increasingly vet brands based on their social and environmental impact.
- Solution strategies: Gaining customer trust requires shifting from transactional sales to deep, values-based relationships. With 81% of UK consumers concerned about their finances, value perception and reliability are the primary drivers of trust. For starters, shoppers expect transparent pricing, reliable (and, ideally, free) delivery and returns and personalised care. Consistently meeting these basic service levels is a prerequisite for customer trust. Retailers can build trust further by, for example, emphasising quality and durability to attract value-sensitive customers. Credibly displaying authentic values — for example, by demonstrating commitment to eco-friendly initiatives or supporting local charities — helps build loyalty among customers sensitive to sustainability and social causes.
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Data sprawl, data silos and poor data stewardship
Data management is one of retailers’ biggest challenges. For many, data is spread across multiple systems (POS, ecommerce, CRM, ERP); there are inconsistent data definitions between systems and lack of master data management. A patchwork of systems and manual processes leads to data quality issues (duplicates, errors, incomplete data). There may be a lack of clear data ownership, ineffective data security and inadequate data retention and deletion policies. Real-time data needs may be impossible to meet.
As a result, managers have difficulty getting an accurate, comprehensive view of the business. Inadequate analytics and reporting lead to slow decision-making and compliance risks. Onerous and time-consuming inventory management results in poor visibility for staff and customers, missed opportunities for personalisation and customer service failures. Customer focus may be lost in firefighting.
- Solution strategies: Invest in fully integrated customer relationship and ERP systems and cloud-based data warehouses with centralised data management and advanced analytics. Establish data governance policies, reconciliation processes and compliance frameworks. Replace batch processes with real-time data pipelines. Develop data quality tools and processes.
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Managing inventory overhead
Inventory is typically a retail business’s largest current asset and can tie up considerable amounts of capital. It also incurs carrying costs such as storage, insurance, transportation, administration, shrinkage and obsolescence. Carrying excessive inventory is costly, reduces business flexibility and can restrict business growth. Managing inventory overhead focuses on freeing up “dead capital” and minimising carrying costs through precise data integration and lean methodologies.
- Solution strategies: Retailers are increasingly adopting inventory management models that combine automated inventory tracking with just-in-time (JIT) order flow. Just-in-time management minimises carry costs by ordering supplies when needed for agreed sales. It requires fully integrated supply chains and local suppliers (to reduce logistics risk). Other inventory optimisation approaches include focusing on the most important items, keeping buffer stocks to cover demand surges or supply disruptions, showrooming and dropshipping, and technology-driven dynamic reorder points.
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Preventing stockouts and overstocking
Stockouts cause lost sales, both now and in the future if customers flee to competitors. It can damage both brand image and corporate reputation. However, overstocking ties up capital that could be used to develop the business, incurs excessive carrying costs and risks losses due to obsolescence and mark-downs. It can also reduce the business’s ability to respond to changes in customer demand or proactively instigate new trends.
Retail inventory management is complex, needing to accommodate seasonal products with a limited selling window, fashion items with a short lifecycle, a wide product assortment across many SKUs and often, multilocation inventory (stores, warehouses, in-transit). Finding the optimal level of inventory is a balancing act and depends on the products offered by the business and the expectations of its customers.
- Solution strategies: Businesses are using advanced analytics and AI to forecast demand, inventory tracking software to accurately record stock movements and cloud-based platforms to give real-time visibility across all locations. Automated safety stock calculations and replenishment protect against stockouts while limiting carrying costs. Predictive analytics can help the business anticipate and respond to demand changes, while integration with supplier systems can increase the speed of response. Regularly reviewing stock levels and reorder points enables managers to identify and eliminate inefficiencies and bottlenecks.
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Attracting repeat customers
Acquiring new customers is 5 to 25 times more expensive than retaining existing ones. Repeat customers have higher lifetime value and are more likely to try new products and spend more per transaction. However, retaining customers is a growing challenge, as competition intensifies and switching costs fall. Customers tend to shop around for deals rather than sticking with the same supplier; they expect loyalty programs to deliver genuine value and look for personalised experiences and recommendations. For many retailers, customer service, rather than product characteristics, is the key determinant of customer retention.
- Solution strategies: Retailers are improving shopping experiences across channels and communicating more proactively with customers — for example, engaging with them post-purchase to offer perks, such as exclusive or early access to new products. Fast, easy returns and exchanges, active issue resolution and personal interaction all help to build loyalty. Loyalty programmes now go beyond points, offering experiences, charitable donations and partner deals, while tiered programmes offer greater value to the most loyal spenders. Other ways of enhancing loyalty include subscription models, personalised offers and mobile app integration.
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Remaining competitive in a saturated market
Many retailers are competing for the same customers, both locally and online. Large players, particularly online, tend to crowd out smaller retailers. Department stores and high street retailers are finding it hard to survive due to high costs and diminishing footfall. Discount retailers such as Poundland are gaining market share. But, for most retailers, a race to the bottom on price is not sustainable. Retailers need to differentiate beyond price.
- Solution strategies: The crucial idea for meeting this challenge is for a retailer to find a way to stand out from the crowd. This might be by offering exclusive products with unique characteristics and staff expertise as part of the package. Personalised customer experiences. Speed, convenience and accessibility. Fostering a sense of community and belonging. Whatever the approach, brand values and positioning are key. Collaboration helps: retailers can offer brand partnerships for exclusive products, service partnerships (such as cafes and other in-store experiences) and technology partnerships.
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Keeping up with regulatory compliance
Consumer protection laws, product safety regulations, data protection requirements, environmental regulations, employment law changes — all of these affect retail businesses and all of them are subject to frequent change. For example, the Digital Markets, Competition and Consumer Act (2024, effective April 2025) outlawed the practice of advertising a low price then adding additional fees later (“drip pricing”). From April 2026, new rules will mandate standardised unit pricing and stricter legibility for displayed prices.
Compliance failures can be costly: the Competition and Markets Authority, for example, can fine businesses up to £300,000 or 10% of turnover for breaches of consumer law. But adverse reporting in the press leading to reputational damage and customer flight can be an even bigger cost. Complying fully with regulatory requirements is important for business success.
- Solution strategies: Institute regular audits and reviews to verify that store presentations, pricing accuracy and safety standards are fully compliant and consistent across locations. Provide regular training for staff, including refreshers on identifying safety hazards, handling personal data and managing escalating customer situations. Work with suppliers to implement ethical, sustainability and safety standards along the entire supply chain. Use compliance management software to automate records, track mandatory training and maintain audit-ready reporting for regulators.
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Staying up on technology
Customer expectations are increasingly driven by new technologies — and retail technology is advancing rapidly. In 2025, AI became retailers’ technology of choice for unlocking growth. Widespread potential applications of AI include personalisation, demand forecasting, dynamic pricing, chatbots and inventory optimisation. Industry research suggests that 60% of retail tasks could be transformed by AI by 2035.
Automation is also gathering pace; developments include warehouse automation (robotic picking and packing), automated online checkout, automated marketing and robotic process automation for back-office tasks.
Other areas of technological innovation include analytics and business intelligence (real-time dashboards, predictive analytics, customer analytics, supply chain analytics); omnichannel technologies (unified commerce platforms, order management systems, mobile POS, virtual queueing); customer-facing technologies (mobile apps, virtual try-on, voice commerce, personalisation engines).
Retailers need to keep up with technology to stay competitive, but finding the capital to meet high investment costs can be a problem, especially with uncertain ROI for emerging technologies. Other concerns include integration with legacy systems, shortage of people with technological skills and complex change management processes.
- Solution strategies: Align technology investments with business strategy, focusing on quantifiable customer benefit to guard against the lure of novelty. Pilot new technologies before full rollout to confirm that they meet business objectives and are properly integrated with existing systems. Invest in staff training and partner with technology vendors and consultants.
Looking Ahead: Future Trends in the Retail Industry
Even after nearly two decades of permacrisis, economic conditions still look like they will remain difficult for some time. Although consumer confidence shows signs of improving, inflation and interest rates are expected to remain elevated until mid-2027, continuing the pressure on household budgets and business costs. In 2026, rises in labour costs will further squeeze profit margins.
Customers are becoming less brand sensitive and more interested in value for money — and more adept at using AI-powered tools to find the best deals, including private-label products. They also show growing concern about sustainability. They expect retailers to demonstrate eco-friendly practices, such as carbon footprint labelling and resale/rental platforms, not only in-house but along their supply chains.
As geopolitical tensions rise and trade wars loom, building resilient supply chains is becoming crucial. Nearshoring and supplier diversification help mitigate risks, while AI can help retailers manage supply chains more proactively to maximise visibility and minimise disruption.
The rise of AI capabilities integrated into ERP systems is expected to cause seismic change. AI is driving hyper-personalisation, with retailers tailoring individual shopping journeys and adapting loyalty programmes and marketing campaigns dynamically in response to individual customer behaviour. Task-specific AI agents are expected to handle complex interactions such as real-time inventory optimisation and automated customer support.
The boundary between physical and digital will become increasingly blurred as bricks-and-mortar stores evolve into “engagement hubs” and use “retailtainment” technologies (interactive displays, AR/VR try-ons) and community-centric spaces to increase footfall and blend physical interaction with digital fulfilment. Despite the rise of pop-ups, hybrid spaces and a trend towards local shopping, the high street seems set for further decline.
A Modern ERP for Forward-Thinking Retailers
Retailers in the UK today must juggle multiple sales channels, optimise inventory in real time, navigate a constantly evolving marketplace and respond to rising customer expectations. NetSuite ERP for Retail helps thousands of retail businesses overcome these and other hurdles. Designed for omnichannel success, NetSuite ERP brings together financials, inventory management, sales data and customer insights, delivering real-time visibility across all channels. NetSuite’s AI-driven analytics support smarter forecasting, faster decision-making and greater operational efficiency. With NetSuite, retailers can confidently meet challenges and develop strategies for success in a rapidly changing retail environment.
Despite today’s difficulties, the future of UK retail is set to be one of transformation, rather than decline. As digital shopping blends with physical, generating new retail models, retailers need to proactively adapt to changing consumer behaviour. Investing strategically in new technology to deliver excellent customer experience while optimising inventory in real time and rigorously controlling costs will be key for success in tomorrow’s dynamic, technology-driven, consumer-responsive retail world.
Retail Industry Challenges FAQs
What is a SWOT analysis for retail?
“SWOT” stands for strengths, weaknesses, opportunities and threats. A retail SWOT analysis identifies a business’s strengths, such as loyal customers or location and weaknesses, such as poor reputation or outdated technology. It then identifies opportunities, such as positive market trends or online growth and threats, such as competition or geopolitical risks. The purpose of a SWOT analysis is to help retail managers develop strategies to capitalise on strengths, address weaknesses, seize opportunities and mitigate threats.
What strategies help UK retailers manage workforce shortages?
Retailers can attract new staff and/or retain existing staff by improving pay and benefits, offering flexible hours, investing in training, establishing clearer career progression pathways and providing a supportive work environment. Broadening talent pools, simplifying recruitment and retraining staff for multiple roles can also ease workforce shortages. Retailers can also invest in technology to automate routine tasks, thus reducing the need for workers.
How can bricks-and-mortar shops compete with online-only retailers?
Bricks-and-mortar shops can compete with online-only providers by offering immediate gratification, sensory product experiences and personal human interaction, which online platforms cannot fully replicate. Physical stores are becoming “engagement hubs” that blend digital convenience with in-store services.
