Marks and Spencer Group PLC (LSE:MKS) and Next PLC (LSE:NXT) were highlighted as potential winners in the retail sector this year, analysts at RBC Capital said.
A detailed analysis of household cashflows suggests further growth in gross and net income for UK consumers in 2025, but fading through the course of the year.
"In the UK we are seeing real wage growth, albeit we expect this to fade through the course of the year as wage growth eases and inflation rises.
"Real wage growth, along with high savings rates should be supportive for consumption, but consumer confidence is low due to concerns about renewed inflation and job losses."
Spending power for lower-income households has been impacted by a rise in the cost of utilities and an acceleration in food/drink inflation, with these households more vulnerable to such inflation as they allocate a larger share of income to essentials and have less flexibility to absorb higher costs.
The 6.7% rise in the national living wage in April "should provide some respite" for lower-income households, the analysts said.
Amidst this uncertain consumer environment, RBC analysts expect consumers to shop "on a needs basis and heavily around paydays, events and occasions" eg Mothering Sunday and Easter, which they see as favouring the likes of M&S.
M&S and Next are expected to see earnings upside, driven by market share gains, a firmer pound against the US dollar and more regular newness and innovation.
Downside risks are seen for Kingfisher PLC (LSE:KGF), due to continued softness in France and Turkey, offsetting strong trends in UK digital and trade.