Retailers in the United Kingdom intensified their search for savings ahead of a tax increase in April By Reuters
By James Davey and Paul Sandle
LONDON (Reuters) – Major British retailers, including Tesco ( OTC: ), Sainsbury’s (LON:)’s, M&S and Following (LON: ), say they are stepping up their drive for efficiency through automation and other measures to limit the impact of rising costs on the prices they charge their customers.
As the UK economy struggles to grow, the new Labor government’s solution is to raise taxes on employers to raise money for investment in infrastructure and public services, drawing criticism from the business community.
Retailers say increased social security payments, a rise in the national minimum wage, packaging levies and higher business rates – all of which come in April – will cost the sector £7 billion ($8.6 billion) a year.
Worries about the broader economic impact sent retail stock prices sharply lower this week and pushed up the cost of government borrowing.
In the retail sector, bigger players have more room to adjust and are cushioned by previous healthy profits, but analysts say smaller players could come under a lot of pressure.
Clothing retailer Next said it faced a £67m rise in wage costs in the year to the end of January 2026, but still forecast profits to rise.
It believes it can offset higher wages with measures including a 1% price rise which it says is “unwelcome but still lower than general UK inflation”. It can also increase operational efficiency in its warehouses, distribution network and stores, the company said.
Chief executive Simon Wolfson said greater automation was inevitable across the sector.
“With any mechanization project, you’re always looking at the payback – you say ‘what’s the savings versus the cost of mechanization, AI or software,'” he told Reuters.
“If mechanization doesn’t become more expensive, but the manpower it saves becomes more expensive, it will mean that more projects can be justified.”
MORE ROBOTS?
Bakery and takeaway chain Greggs (LON: ) last year opened a highly automated production line at its facility in Newcastle, northeast England, which means it can make up to 4 million more steaks and other products each week from its current 10 million.
Tesco, Britain’s largest supermarket, is also increasing automation and will open a robotic refrigerated distribution center in Aylesford, southeast England, this year.
Another grocer Sainsbury’s is encouraging more shoppers to use its SmartShop manual self-scanning technology.
Although Tesco is facing an annual loss of £250m due to the increase in employers’ National Insurance contributions alone, chief executive Ken Murphy said he would deal with it.
After weathering the COVID pandemic, supply chain disruption and commodity and energy inflation, he said Tesco was used to dealing with rising costs by finding savings elsewhere.
Finance chief Imran Nawaz said Tesco’s “Save to Invest” program was on track to deliver £500m of efficiency savings in its year to February 2025, after delivering £640m in 2023/24.
“Looking ahead, it’s clearly going to be another year where we’re going to have to do a great job,” Nawaz said, singling out savings from better buying by Tesco’s procurement organisation, in logistics, transport and waste reduction.
Sainsbury’s, facing an extra £140m in National Insurance, is similarly targeting £1bn of cost savings by March 2027.
Clothes and food retailer M&S, which faces £120m of extra wage costs, said it aimed to pass on “as little as possible” to consumers.
One of the biggest names in the UK market, the 141-year-old retailer is in the middle of a successful turnaround program and believes it can continue to make further savings by modernizing its distribution and supply chain.
“My summary is: a big deal, but a lot under our control and we need to be relentlessly focused on costs over the next 12 months,” chief executive Stuart Machin said.
“We talk a lot about volume growth, because the more we sell, the more it alleviates some of these cost pressures.”
Ian Lance, a fund manager at Redwheel, one of M&S’s biggest investors, said the company was likely to be able to deal with its cost challenges better than most. “They have an extremely capable management team and a product offering that clearly resonates with consumers for its quality and value,” he said.
But for many smaller players, raising prices is the only option.
A British Chamber of Commerce survey of 4,800 companies, most with fewer than 250 employees, revealed a 55% planned price increase – potentially hampering the fight against inflation and growing the economy.
And some will require more drastic measures.
British discounter Shoe Zone said the extra budget costs meant some stores had become unviable and would be closed.
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