Retail has long operated on thin margins, but the industry is increasingly questioning whether the current model is sustainable. A 2024 survey of 120 UK retailers found that 85% reported net profit margins below five per cent. At that level, the investment case for the sector becomes difficult to justify. Businesses with such limited profitability have little buffer against cost inflation, operational disruption or shifts in consumer demand.
If the majority of retailers cannot consistently deliver acceptable returns, the sector must change how it operates. The focus is shifting towards models designed to deliver net margins of ten per cent or more, a level that provides resilience and a clearer path to sustainable value creation.
Achieving this is not simply a matter of driving more sales. The retail operating model itself needs to become more efficient and more focused on the most valuable parts of the customer base. Cost structures, supplier relationships and product strategies all play a role in lifting margins to more investable levels.
One of the most immediate opportunities lies in reducing technology costs. Many retailers still rely on complex legacy IT estates that require significant maintenance and support. Modern integrated platforms can materially reduce these costs while simplifying operations across merchandising, supply chain and customer engagement.
Corporate overheads are another area where retailers can unlock efficiency. Streamlined systems allow businesses to operate with smaller support teams and leaner head office structures without weakening operational capability.
itim Group plc (LON:ITIM) is a SaaS-based technology company that enables store-based retailers to optimise their businesses to improve financial performance and effectively compete with online competitors. Itim adds retail value by helping multi-channel retailers optimise their business and their stores to improve financial performance and compete more effectively with the “Amazons”.
