Festive cheer for M&S and Tesco - but can retailers weather 2025 economic challenges?

Marks & Spencer saw its group sales jump 5.6 per cent in its Christmas trading period, spanning the 13 weeks to December 28, compared with the year before. Overall sales topped £4.06 billion, just under two-thirds of which came from its food division, which saw its biggest ever trading day during the period.

The retail stalwart’s clothing division also saw its best ever online weekly sales total, marking a striking comeback from being seen as unfashionable for much of the last decade. Chief executive Stuart Machin, whose turnaround has involved a number of store closures and relocations, said sales records had been broken across the business.

The M&S update came as Tesco cheered its highest market share since 2016 after ringing up a rise in sales over the crucial Christmas season. The UK’s biggest supermarket chain reported UK and Ireland like-for-like sales, excluding fuel and VAT, up 3.7 per cent over the six weeks to January 4 and record trading in the week before Christmas.

Tesco said it benefited from investments in prices as customers switched to the chain, with recent industry figures from Kantar showing its market share reached a nine-year high of 28.5 per cent in the 12 weeks to December 29. It confirmed it remained on track with recently upgraded full-year profit guidance for around £2.9bn in retail underlying earnings.

The retail sector’s “super Thursday” also saw updates from the likes of Greggs and B&M. Meanwhile, Glasgow’s Silverburn shopping and leisure centre - one of Scotland’s largest - announced a record-breaking year, surpassing its previous high in 2023 by 42,000 visitors. In total, the complex welcomed 15.2 million visitors in 2024, marking a 2.4 per cent increase in foot traffic in December alone.

Centre bosses said Christmas spending had been well-distributed over November and December with gift card sales growing by 9 per cent year-on-year. Silverburn recorded its second busiest day ever on December 23, welcoming in excess of 89,000 guests on that day alone.

The positive festive numbers from M&S and Tesco might have champagne corks popping, but 2025 could prove to be one of the toughest in recent times for the wider retail sector as it battles rising costs, continuing inflationary pressures and lacklustre consumer demand.

Earlier this week, Next cast a shadow over the sector after warning of the “serious” impact of recent UK Budget measures and the likelihood of price hikes for shoppers. The high street bellwether said it was facing a £67 million surge in its wage costs in the year to January 2026 - rising to £73m for a full year’s impact - after the Labour Government announced plans to increase employers’ national insurance contributions and the minimum wage from this April.

Richard Hunter, head of markets at investment platform Interactive Investor, said Tesco and M&S had been “busy making hay while the sun shines” as he outlined some of the obstacles that lie ahead.

“Investors have chosen to slam both stocks in early trade amid the raft of economic challenges to come, while taking some profits after their strong recent rally,” he noted. “[M&S] anticipates a tougher year ahead, as customers potentially retrench in light of higher for longer interest rates and the possibility of higher goods prices following the measures announced in the Budget.”

Echoing the alert from Next, the M&S boss has also warned of passing on increased costs to customers through price rises. Machin said that he wants to pass on “as little as possible” in costs to consumers, but that the company had been forced to “rework” its plan for the coming years.

He said the company “didn’t plan” for Chancellor Rachel Reeves’s decision to raise national insurance contributions for companies in the Budget. Any cost inflation “will be small and it will be behind the market”, he said, adding mitigating it is “not easy”.

When asked whether M&S would cut jobs as a result of the Budget measures, he said: “This is going to be a challenge for us. I do not see in M&S big job losses. We’re a growing business. We’ve got lots to do.”

But he added the company would have to be “really diligent” on where it recruits new employees.

Meanwhile, Greggs has warned that the rising cost of employing people will result in price rises across its range as it said “lower consumer confidence” late last year had hit sales. The bakery and snacks chain said “employment costs will result in further overall cost inflation, although wage increases should provide support to consumers”.

Greggs, which has some 2,500 outlets, was one of more than 70 businesses that wrote to the Chancellor last year to warn that changes announced in the October Budget meant price hikes were a “certainty”.

Greggs’ fourth-quarter sales grew 2.5 per cent as it pointed to a “more challenging market backdrop” in the second half of the year. The result for the quarter ending December means that the chain made £2bn in annual revenue for the first time ever, an 11.3 per cent rise compared to 2023. But sales, including its famous sausage rolls and Festive Bakes over the Christmas period, came in behind growth of 5 per cent in the previous quarter.