Retail predictions 2026: Choppy year ahead for consumer spending
Jacqui Baker, head of retail at Ҵý, looks at the key themes that are likely to shape the retail industry in 2026:
Fragile consumer confidence Ҵý ҴýWhile the budget didnҴýt deliver a killer blow to consumer confidence, it also didnҴýt provide much of an incentive to get spending. In fact, following the budget, nearly 60% of consumers said they plan to save more or continue saving at the same rate over the next three months, suggesting caution remains king. With most tax rises backloaded to the end of the decade, itҴýs likely consumers will be muddling through the continued cycle of uncertainty next year which doesnҴýt bode well for the sector. Household saving rates remain extremely high, but with more interest rate cuts on the horizon and inflation coming down, this should help consumers feel like they have a bit more money in their pockets and hopefully prompt them to spend rather than save.Ҵý
The lipstick effect Ҵý ҴýOne area that consumers donҴýt appear to be cutting back on is health and beauty, with 10% of consumers planning to spend more on this category in the next three months, doubling from 5% last year. The Ҵýlipstick effectҴý is even more pronounced among Gen Z, as 19% plan to increase their health and beauty budgets, up from 8% last year. With economic growth likely to remain subdued next year, we expect to see more consumers opting for smaller luxuries as they look to treat themselves without breaking the bank.Ҵý
The influence of influencers Ҵý ҴýThis year weҴýve seen the growing dominance of social media in the retail sector, particularly when it comes to product discovery. Younger consumers (18-24 years old) are most likely to discover products through TikTok and Instagram than search engines. Discovery also extends beyond the checkout, as one in three Gen Z turn to social media for styling or usage inspiration after purchase, which is only set to accelerate. While social is key, online as a whole cannot be ignored, with two-thirds (66%) of Gen Z shopping mostly or almost entirely online, and mobiles dominating as the preferred device (68%). Mobiles can act as the gateway into stores, to check availability, redeem loyalty points and make payments. Retailers ought to tap into this opportunity, but that starts with having a seamless customer journey between online and instore.Ҵý
Experimentation over brand loyalty Ҵý ҴýWith an abundance of product variety in the retail space, loyalty is no longer guaranteed, so brands are having to fight harder than before to win over consumers. When looking at Gen Z shoppers, only 28% consider themselves loyal to brands, with 33% preferring to mix familiar brands with new or trendy ones and 25% actively seeking out new brands. Budget loyalists tend to be younger and the most financially constrained; given their price sensitivity they tend to stick to trusted brands. Experimentation also tends to accelerate with online shopping. Retailers must focus on continually re-winning loyalty through relevance, authenticity and innovation. The use of artificial intelligence will be key here to flex their approach depending on the consumer and their needs.Ҵý
Sustainability: values versus value Ҵý ҴýSustainability continues to be of high importance, particularly for older, more financially secure consumers. Younger generations are more likely to have an aspirational intention, where they care about sustainability but will compromise due to cost or convenience. This has intensified with the rise of ultra-fast fashion and growing cost pressures. That also means pre-loved fashion continues to become increasingly popular. WeҴýre already seeing major high street brands tap into this market by showcasing second hand collections in store, but thereҴýs still plenty of scope for retailers to tackle sustainable fashion, such as sourcing recycled fabrics and optimising supply chain efficiency. This is particularly key for the health and beauty sector, where consumers appear to place greater importance on sustainability, making it integral to the product.Ҵý