Reclaiming the Profit Pool – How Retailers are Fighting Back on Profit Pressure

Retailers in the UK have been contending with a steadily shrinking profit pool for the past decade; despite the profit pool of the broader value chain expanding. Without strategic intervention, the traditional retail profit pool is projected to shrink 40% by 2030. Retailers must act quickly to reclaim profitability.

The Structural Dynamics

Despite inflation stabilising in 2024, deeper structural issues – such as weak volume recovery and continually cautious consumer spending due to the sluggish recovery of disposable income – continue to challenge retailers. While consumer confidence has begun to improve, wider uncertainty has continued to curb retail spending, with retailers bearing the brunt of the resulting reduced profit pool.

Amidst this backdrop, ‘intervention’ from policymakers layered new pressure on retail economics, and the everyday cost of operation inflated faster than sales improved. While there has been recovery since the ‘darkest day’ of COVID, retailers are still facing significant pressures.

We see three key structural trends that will shape the coming years:

Structural pressure on volumes are here to stay, with total retail volumes predicted to only return to 2021 levels by 2028.
Customers have found their channel balance, and all market growth is coming from multichannel journeys and omnichannel strategy.
The capabilities required for retailers to survive and thrive are rapidly evolving, and for many retailers these are not longstanding strengths.

In many retail sectors, the most acute value chain pressure is felt by retailers as retail operating margins narrow. In contrast, brands, logistics providers, affiliates, media agencies and more have experienced growth. This unfairly reflects the value retailers present to shoppers and brands.

The Value of Retailers

Retailers still offer unique benefits to brands, and play a critical role in their success:

Scale: Retailers provide access to a broad market via established networks and customer bases
Convenience: Retailers offer greater ease in logistics of distribution for brands
Experience: Retailers hold a great depth of consumer knowledge and market expertise
Consumer Insights: Brands can tap into retailers unprecedented insights into consumer behaviour models with new digital tools.

After a period of focus on D2C, Nike has begun rebuilding wholesale ties with retailers since 2023 – and Glossier moved from an exclusively D2C model towards an omnichannel approach, integrating traditional retail avenues.