Key report insight stats
> £5.6 bn rise in UK retail operating costs hits in April 2025.
> 37.4 % of mitigation effort targets efficiency & productivity, worth £2.08 bn in savings.
> 31.0 % of cost pressure passes to shoppers through selective price increases.
> 22 % of retailers will optimise or shrink store portfolios, with local high streets & shopping malls most at risk.
> 90 % agree automating routine tasks will unlock higher-value service.
> 86 % say mobile-first task tools are critical for execution consistency.
> 91 % back smart AI task allocation to speed real-time response on the shop-floor.
Introduction
Survival within UK retail has never been more expensive. With operating costs surging and customer expectations higher than ever, retailers are clearly striving to unlock efficiency gains for long-term viability. As we enter a defining period of transformation, businesses are contending with rapid technological advancement with AI generating significant interest.
Faced with a £5.6bn increase in operating costs for 2025/26 (driven by wage hikes, higher National Insurance Contributions (NIC) and rising business rates), retail brands face continued pressure to revamp their efficiency and productivity strategies to safeguard profitability.
This report explores how frontline retail operations – the workforce, technology, and processes that underpin the retail experience – can be optimised to mitigate cost pressures while enhancing customer engagement. Using insights from a survey of UK retailers (turnover between £10m and £5bn), the report identifies key challenges, investment priorities, and strategic responses shaping the industry in 2025 and beyond.
The findings reveal that while retailers are actively pursuing cost mitigation strategies, there is no single solution to balancing rising expenses with long-term growth. Instead, businesses are leveraging a combination of pricing adjustments, operational efficiencies, and transformation to maintain competitiveness.
The retailers that will emerge strongest from this period of change will be those that embrace operational agility, invest in technology-enabled workforce solutions, and prioritise productivity as a strategic advantage. As cost pressures mount, operational excellence is no longer optional – it is essential for survival and growth
Section 1 – The five pillars of frontline retail operations
Retail is undergoing a period of profound transformation, shaped by shifting consumer expectations, digital disruption, and the need for greater operational efficiency.
From April 2025, UK retailers are operating in a significantly higher cost environment, with increases in National Insurance contributions, business rates, and minimum wages driving up expenses. These cost pressures threaten investment in frontline operations – an area too often viewed as a cost centre rather than a strategic lever for efficiency and competitive advantage.
Yet, as competition intensifies, consumer expectations rise, and margins tighten, frontline operational excellence has never been more critical. Retailers that invest strategically in their frontline teams can ensure that every pound spent delivers measurable gains in efficiency, customer experience, and workforce productivity.
The YOOBIC Frontline Retail Excellence Model (YFREM)
Source: Retail Economics, YOOBIC
To better navigate operational challenges, retailers need a clear framework that links frontline investments to tangible business benefits. The YOOBIC Frontline Retail Excellence Model (YFREM) provides a framework to help retailers rethink how they optimise frontline operations to drive efficiency, boost workforce productivity, and improve customer experience in a high-cost environment.
YFREM identifies five key pillars of frontline operational excellence: 1. Training & Development 2. Task Automation 3. Communication & Feedback Loops 4. Employee Engagement & Motivation 5. Customer Experience Optimisation These pillars align across the key stages of the customer journey, ensuring operational investments translate into tangible customer benefits – from initial brand awareness to post-purchase service and loyalty.
By embedding frontline operational excellence into these touchpoints, retailers can directly connect internal efficiencies to external impact, reinforcing the critical role of the frontline workforce in driving both profitability and customer satisfaction.
Key takeaways:
🔑 Training & Development: Equip staff with product knowledge, soft-skills and digital literacy.
🤖 Task Automation: Reduce manual work so teams focus on value-adding customer interaction.
🔄 Communication & Feedback Loops: Strengthen knowledge-sharing for agile execution.
🎯 Employee Engagement & Motivation: Use recognition and wellbeing to cut churn and lift service.
✨ Customer Experience Optimisation: Deploy data-driven tactics across every touchpoint to personalise journeys.
Section 2 – The triple cost shock facing UK retailers in 2025/26
UK retailers are grappling a significant financial shock in 2025/26. The Autumn Budget’s policy changes
– ranging from higher employer NIC to an uplift in the National Minimum (NMW) and Living Wage (NLW)
– has set in motion a multi-billion-pound increase in operational costs across the sector.
Figure 5: Retail industry faces a £5.6bn Budget headwind in 2025/26
With costs set to rise, most retailers have taken proactive steps to assess the financial impact – 89% of businesses have calculated the potential burden and are planning mitigation strategies.
Retail brands face specific challenges around balancing rising cost pressures from frontline operations with the need to invest in technology, workforce efficiency, and operational excellence. The risk of failing to act intelligently means falling behind.
Our findings show that:
• Total additional costs facing UK retailers are expected to rise by £5.56bn in 2025/26 compared with the previous year, driven by higher wage bills, business rates, and tax contributions.
• Retailers need to mitigate these costs, including finding efficiency savings if they are to avoid price increases, a hit to profit, and cost-cutting measures such as reducing store hours, staff numbers, or operational investment.
• Large businesses benefit from economies of scale, allowing them to absorb some cost increases, whereas small businesses have more flexible cost structures, enabling agility in response to changing conditions.
• Retailers must ultimately prioritise efficiency and productivity gains to navigate this cost-heavy environment in order to maintain service levels and competitiveness.
Section 3 – Navigating rising costs against weak growth
Cost mitigation strategies
In 2025/26, retailers are using a range of different measures to help mitigate the impact of rising costs against a weak economic backdrop.
To understand how they are responding to cost pressures, we asked them to allocate their expected mitigation strategies based on their increase in operating costs from April 2025.
The responses (Fig. 7) reflect how businesses intend to distribute their cost-reduction efforts across three primary levers:
Figure 7: Higher costs are putting pressure on prices, profitability and driving efficiency
Question: Thinking about your scenario in which an increase in operating costs is expected to impact your business from April 2025, please indicate how your organisation would allocate the following tactics to mitigate the impact, and how your organisation would allocate the proportion of your cost optimisation efforts across the five cost optimisation areas?
Source: Retail Economics, YOOBIC
Pricing strategy and cost absorption
The results show retailers remain cautious about increasing their prices, allocating just 31.0% of efforts using this tactic, with £1.7bn of costs being passed onto consumers. Online retailers, in particular, are hesitant due to high price transparency, while store-based retailers (especially smaller ones) are more likely to adjust pricing with localised strategies.
Absorbing costs remains a necessary tactic for many, with an average 31.6% allocation.This represents a reduction in pre-tax profit of £1.76bn in 2025/26, marking a 6.7% drop in industry profits year-on-year. Large retailers are more likely to absorb costs, leveraging their financial strength, whereas small retailers prioritise cost optimisation, adopting agile operational improvements instead.
🚀 Efficiency & productivity top the agenda, with supply-chain optimisation the #1 tactic (39 % of firms).
🪙 Financial engineering—especially working-capital optimisation (38 %)—shields liquidity.
🏬 Store portfolio rationalisation: 22 % will relocate, shrink or merge sites; local high streets & malls are most exposed.
⚖️ Balanced approach: Retailers split mitigation roughly one-third price rises, one-third cost absorption, one-third optimisation.
3.2 Cost optimisation: The preferred strategy
Retailers are prioritising cost optimisation as they navigate rising operational pressures, with 37.4% of cost-saving efforts focused on improving efficiency and productivity to save £2.08bn in 2025/26. However, there is no single solution – businesses are deploying a mix of five core strategies to maintain profitability:
1. Efficiency and productivity – Process automation, digital transformation, and workforce optimisation.
2. Pricing strategy – Smarter promotions and margin mix optimisation.
3. Financial engineering – Improved working capital management and stronger supplier negotiations.
4. Business model restructuring – Store portfolio rationalisation and asset monetisation.
5. Margin management – Strategic discounting and markdown optimisation.
Among these strategies, supply chain optimisation (39.0%) has emerged as the top priority, reflecting a sector-wide push to build leaner, more resilient supply chains. Financial engineering, including working capital management (38.0%), is also a critical focus, as retailers seek to preserve cash flow in a high-cost environment.
At the same time, pricing strategies are being actively reassessed, with one in three retailers adjusting their approach to offset cost pressures. This highlights the importance of balancing margin protection with competitive pricing, ensuring businesses can retain customers while safeguarding profitability.
Figure 8: The five tactical pillars of cost optimisation
Question: Does your organisation intend to implement any of the following measures to manage rising operating costs from April 2025?
Section 4 – The future of frontline operations in retail
Initiatives shaping retail operations in 2025/26
As technology evolves and customer expectations shift, frontline retail operations must adapt. Investing in advanced tools, training, and real-time insights is now critical for efficiency and competitiveness. Our report identifies three key themes that will help retailers optimise their frontline workforce, boosting
productivity and customer satisfaction:
Theme 1: Precision-driven operations
Future retailers must adopt AI, automation, and analytics to enhance efficiency and decision-making. This includes:
• Automation of routine processes is a top priority, with 90% of retailers agreeing it will free staff for higher-value activities like personalisation and service.
• Operational data centralisation is key to efficiency, with 82% of retailers (88.9% of large ones) believing it will improve cross-department collaboration and decision-making.
• AI-enhanced decision-making is more valued by medium (87.5%) and large retailers (83.3%) than small businesses (58.8%), reflecting their more complex structures.
Recommendations
1. Rethink end-to-end operations: Move beyond AI hype in 2025 and drive real impact. Overhaul entire operations to unlock massive productivity gains. Embrace strategic transformation to leverage AI’s evolving capabilities and gain a competitive edge.
2. Leverage AI for insights and automation: Implement AI-driven solutions for advanced business analytics and task automation. Reduce manual workloads, allowing frontline teams to focus more on
customer interactions and driving sales.
3. Rationalise tools and integrate systems: Take a critical look at your current tech stack, identifying opportunities to consolidate with multi-functional tools that integrate seamlessly. Building this type of connected ecosystem will allow you to unify data, enabling data-driven decision-making and boosting efficiency across the organisation.
Download the full report now to access recommendations on the "rise of employee empowerment", and "seamless human-technology collaboration"
Conclusion
As UK retailers face mounting cost pressures and shifting consumer expectations, the path forward demands a strategic balance between efficiency, investment, and adaptability. This report highlights that while rising operating costs (driven by tax changes, wage increases, and business rates) pose significant challenges, retailers are actively seeking solutions to maintain competitiveness without compromising customer experience.
The work presents the YOOBIC Frontline Retail Excellence Model (YFREM). It is a framework to help retail brands assess how they can optimise frontline operations to drive efficiency, boost workforce productivity, and improve customer experience in a high-cost environment. By leveraging smarter resource allocation and improved service execution, retailers can also unlock new revenue opportunities and enhance profitability.
Cost optimisation by enhancing efficiency and productivity is a core focus amongst retailers. Overcoming barriers associated with systems integration, upskilling, technological limitation and employee engagement will be critical to realising widescale operational improvement. Furthermore, the integration of human expertise with AI-powered decision-making will allow retailers to scale service quality and operational effectiveness.
In fostering a more agile frontline workforce, businesses can not only mitigate cost pressures but also unlock new levels of productivity, customer satisfaction, and profitability. As such, retail brands that invest in technology-enabled workforce optimisation and data-driven strategies will be best positioned for long-term success.
About this report
This report, produced by Retail Economics in collaboration with YOOBIC, delivers critical insights from:
✅ A survey of 100+ senior retail decision-makers across the UK, representing diverse sectors including grocery, fashion and home.
✅ Proprietary economic modelling quantifying the impact of April 2025’s cost increases on the UK retail sector.
✅ In-depth analysis of frontline operations, cost mitigation strategies and emerging technologies such as AI-driven task allocation.
The findings explore how retailers are responding to a £5.6bn cost shock by rethinking frontline roles, re-engineering store operations and investing in smart digital tools.
📥 Download the full report to access benchmarks, real-world use cases and strategies to turn operational pressure into long-term profitability.
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