Christmas shoppers pass a sale sign on Oxford Street in London, Britain, 20 December 2018. The Office for National Statitsics figures showed sales rose in November to 1.4 per cent from October.Christmas shopping in Britain, London, United Kingdom - 20 Dec 2018

LONDON — Spooked.

U.K. consumers and retailers alike are venturing into the New Year feeling insecure, under pressure and utterly unenthusiastic about spending — unless there’s a discount involved.

If only it was just Brexit jitters to blame, but it’s not. While the U.K. economy is set to grow 1.5 percent in 2019, up from 1.4 percent in 2018, and unemployment is at its lowest rate since the early Seventies, incomes haven’t risen much overall.

The result? Nervous consumers are paying down debt from previous years when their paychecks weren’t keeping up with inflation, and they’re also waiting for discounts. According to GfK, the global market research group, consumer confidence in the U.K. dropped to a five-year low in December, due to the threat of higher inflation and concerns around Brexit.

Retailers, in particular the brick-and-mortar ones, are grappling with the rising cost of doing business due to the weaker pound, a higher minimum wage — and rampant discounting. In November, inflation dropped to 2.3 percent following discounting by retailers ranging from supermarkets to fashion chains.

They have also been hit by business taxes, onerous rent deals, and are now set to shoulder a new, government-led pollution and recycling tax, unveiled in December by environment secretary Michael Gove.

A woman holding an umbrella walks past the Topshop flagshop store in Oxford Circus as it opens for customers.Top Shop business continues after Sir Phillip Green Allegations, London, UK - 26 Oct 2018

A woman holding an umbrella walks past the Topshop flagship in Oxford Circus as it opens for customers.  Ray Tang/REX/Shutterstock

It’s not just the brick-and-mortar ones whose profits are coming under pressure. All eyes are now on Asos — the golden child of online fashion retail — which spooked investors throughout the autumn with a string of downbeat reports.

Company bosses were stripped of their bonuses for the first time in four years after the retailer failed to hit its targets, while in December, Asos was forced to issue a profit warning due to an unexpectedly bad November, when it was forced to discount to keep up with competitors.

The first months of 2019 are likely to bring more of the same, according to Diane Wehrle, insights director at Springboard, which looks at bricks-and-mortar retail activity across the U.K.

She said the high-street retail scenario “is looking fairly weak,” following footfall patterns that have worsened over the past four months. “Retail in the early part of 2019 won’t be stronger, unless there’s a big shift in the fundamentals” of consumption, she said.

The central issue for retailers is discounting, Wehrle said. “They have to stop discounting — it’s like taking medication and then having the same symptoms over again because consumers have come to expect discounts.”

The run-up to Christmas has seen unprecedented discounting with stores of all stripes slashing prices, including Ralph Lauren, Mango, Kurt Geiger, Boden and Cos.

That discounting took a toll on Britain’s Boxing Day sales, with footfall down 3.1 percent year-on-year, according to Springboard. This year marked the third consecutive decline in footfall, “which indicates the lessening in importance of Boxing Day as a trading day,” the company said. Boxing Day, the day after Christmas, has traditionally kicked off the winter sale period in Britain.

Springboard said footfall was down because of “the almost continuous discounting that has been taking place by retailers this year — particularly over the period from Black Friday onward — which negates the reason to defer purchases to Boxing Day.”

Wehrle said that while much has been made in the U.K. of sustainable shopping, with consumers buying fewer, better things, households are also becoming more price conscious, a trend that’s denting footfall and spending.

She pointed out that Poundland, the variety store chain that sells most items for one pound, has been performing well. The company recently broke the 1 billion pounds revenue ceiling, and is in expansion mode.

George Wallace, chief executive officer of MHE Retail, said the discounting, store closures and company failures of 2018 are a taster of what’s to come. He said that between Brexit uncertainty, the growth of online, the downturn in consumer confidence and the new emphasis on experiences rather than ownership, a perfect storm began brewing for the sector.

Indeed, former high-street stalwarts Marks & Spencer, Debenhams, New Look, Laura Ashley and House of Fraser all closed stores or announced swathes of closures to come.

Wallace pointed out that Arcadia, the retail group owned by Sir Philip Green that includes Topshop, Topman, Miss Selfridge and Burton, hasn’t hit the wall — yet — and even the best retailers, such as Primark and Asos, which both witnessed a tough November, have begun to struggle.

Just before Christmas, Boots’ international retail division saw first-quarter sales shrink 2.3 percent on an underlying basis “mainly due to weak U.K. market conditions,” the company said. Gross profit decreased 7.8 percent compared with the same quarter a year ago.

Wallace believes the pace of store closures and bankruptcy filings could quicken a bit. Like Wehrle, he believes retailers “have to stop self-harming with discounts” and accept that on most high streets across the U.K. there need to be fewer, smaller stores with lower rents and higher sales per square foot.

Black Friday on Oxford Street Late Night between the hours of 7pm and 9pmBlack Friday, London, UK - 23 Nov 2018

Black Friday on Oxford Street between the hours of 7 and 9 p.m.  Jack Dredd/REX/Shutterstock

“In five years’ time — after a painful process — we could find ourselves with a new equilibrium: A more sustainable number of viable shops — and higher sales per square foot — combined with online growth,” he said.

There are glimmers of hope on the nearer horizon, too, according to Jace Tyrrell, ceo of the New West End Co., which seeks to promote retail and other businesses in Mayfair, Soho and around Oxford and Regent Streets.

The neighborhood bucked the Boxing Day trends, witnessing a 15 percent increase in footfall, with 50 million pounds spent on the day. Selfridges notched more than 4 million pounds in sales in the first few hours of trading on Dec. 26.

In an interview, Tyrrell pointed out that the big luxury brands — such as Stella McCartney, Alaïa, Givenchy, Cartier, Pomellato and Alexander McQueen — have continued to invest in their Mayfair flagships, with an estimated 1 billion pounds of capital expenditure over the past year in and around Bond Street.

He also believes that, despite Brexit uncertainty, tough economic times and challenges specific to the retail sector, the West End will thrive through a mix of stores, experiential spaces, galleries and community-oriented places that are not “straight retail.”

In the summer of 2019, Microsoft will move into the former Benetton flagship in Oxford Circus. It will offer a mix of retail and experiences, workshops and training, much like the one on Fifth Avenue in Manhattan.

“We reckon there’s 25 percent too much retail in the West End,” he said, adding that the shakeout will come over the next two to three years and the result will be “fewer but better” stores.

Shoppers on London's Oxford Street with 9 days to Christmas Day. Retailers are expecting a rush of shoppers in the lead-up to Christmas.Christmas shoppers, Oxford Street, London, UK - 15 Dec 2018

Shoppers on London’s Oxford Street with nine days to Christmas Day.  Dinendra Haria/REX/Shutterstock

The West End, the highest-profile hub of British retail, is also expecting a 4 billion pound boost from the new Elizabeth Line by 2023. The line is part of the massive Crossrail project that will stretch as far west as Reading in Berkshire, through central London and east to Shenfield in Essex.

Oxford Street will also get a 150 million pound bump in investment to increase pedestrian walkways and improve communal areas.

Tyrrell added that while the next two years will undoubtedly be tough for the sector, he believes retailers are “incredibly entrepreneurial, and they know how to adapt and evolve” to changing times.