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Gaining ground in a year of cautious spending

Retail Outlook 2026
Two young women in a vintage clothes store

Careful choices and tighter budgets will shape 2026—a year where growth is expected to be uneven, value for money will be scrutinised and retailers will need to work harder for every discretionary pound. But those who move quickly to take share have the opportunity to outpace the market.

Retail, Consumer and Leisure Briefing 2026

Our sector leaders unpack the latest data to help you navigate the year ahead.

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CEO interviews

Find out how CEOs across the sector—from David Lloyd to Compass Group—are responding to the forces shaping business this year.

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A controlled golden quarter signals a cautious year ahead

Rising food costs and job security concerns are shaping how people spend, go out and save. That came through clearly in the golden quarter: households wanted to make the festive season feel special, but they did so within stricter financial limits.

Consumers made fewer, more considered purchases and held back from big-ticket items unless there was a strong reason to act. They looked for ways to come together, to treat themselves and loved ones, and to keep festive traditions going, all while maintaining a tight grip on what they put in the basket.

“Shoppers brought spreadsheets, not impulse, to Christmas. People needed a reason to shop, and retailers had to work harder to persuade them to open their wallets for more discretionary items, while spending selectively on value, premium food and practical gifts.”

 Lisa Hooker
Global FDD Leader and Retail, Consumer and Leisure Specialist, PwC United Kingdom

Within that picture, some differences between consumer groups emerged. Affluent and younger shoppers were more inclined to spend more on select categories, such as premium treats and premium ranges in supermarkets, while lower‑income and older groups searched harder for value and traded down.

Channel behaviour reflected the same pattern of controlled spending. Online remained important but interest in events such as Black Friday levelled off. By contrast, physical locations that make life easier—particularly retail parks that combine grocery, everyday shopping and leisure in one location—continued to perform relatively well.

Looking into 2026, concern about the cost of everyday items remains high across all age groups. That’s unsurprising given the rising cost of groceries, which people experience every week. Worries about job security have also risen, especially among younger people. Many consumers say the cost of living will keep influencing how they spend over the next few months.

At the same time, there are reasons for measured optimism. Consumer sentiment has improved from the lows we have seen in recent years, particularly among younger and more affluent groups. There is also some good news about the prospect of interest rate cuts and signs that inflation may be stabilising. Living wage increases and increased benefit payments will help some consumers too.

The challenge is that the market growth most retailers will see is not enough to offset cost growth, and the growth that does exist will not be evenly spread. That makes this a good opportunity for winning retailers to invest and take share as they do so: focusing on higher growth consumer segments, using data and loyalty more effectively, and starting to apply new technology to reduce end‑to‑end cost to serve and improve customer experience at key points in the journey.

“Technology, particularly agentic AI, gives retailers a way to tackle both sides of the challenge we’re facing—low, uneven growth and rising costs. It can help operating costs across the business and speed up how they plan, buy and move product, while also reshaping discovery and service for customers.”

Jacqueline Windsor
UK Head of Retail and Strategy& Partner, PwC United Kingdom

Taken together, the golden quarter and the latest consumer data set a clear tone for the year ahead: consumers firmly in control of their wallets, spending heavily shaped by the cost of living, and a clear split between those who have headroom and those who don’t. A pattern being described as a K‑shaped recovery.

Retailers that align quickly to this reality, and use value, experience and technology to meet different customers where they are, will be best placed to gain ground in 2026.

Priorities for retailers

Growth in this sector will be hard-won, but there’s potential for retailers ready to act. Those who can adapt quickly, protect margins, and deliver value-led experiences will be best placed to outperform.

Retailers are navigating competing investment demands: reinforcing value credentials in the short-term and transforming their business models in the medium-term. Many are reassessing their cost base to fund these investments, reallocating back-office costs to customer-facing activities, and deploying automation and emerging agentic AI solutions to reduce end‑to‑end cost to serve.

Labour costs remain elevated, with ongoing increases to National Insurance Contributions, the National Living Wage, and potential implications from the Employment Rights Bill. These changes are squeezing margins and creating a clear need to rethink workforce strategies.

Bricks-and-mortar remains central to brand experience and customer acquisition, but fluctuating footfall is putting pressure on store economics. Retailers must reimagine the role of physical locations - optimising number of stores, introducing experiential formats, and integrating digital touchpoints to attract and convert customers.

Delivering a seamless experience across channels carries growing expense. Investments in order management systems, warehouse management systems, and last-mile logistics are escalating as retailers strive to meet consumer expectations for speed and flexibility. Keeping these costs in check while protecting margins is essential for maintaining a healthy fulfilment model – and will increasingly depend on AI-driven forecasting, routing and decisioning to optimise end‑to‑end cost to serve.

The past year has seen several high-profile breaches across the retail sector, highlighting the urgency of robust cyber resilience. From safeguarding payment systems to protecting customer data, retailers must embed security into every layer of their operations. Those who act decisively will not only mitigate risk but also strengthen consumer trust.

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Contact us

Lisa Hooker

Lisa Hooker

Global FDD Leader and Retail, Consumer and Leisure Specialist, PwC United Kingdom

Tel: +44 (0)7802 882562

Email
Kien Tan

Kien Tan

Senior Retail Adviser, PwC United Kingdom

Tel: +44 (0)7880 552726

Email
Jacqueline Windsor

Jacqueline Windsor

UK Head of Retail and Strategy& Partner, PwC United Kingdom

Tel: +44 (0)7801 074739

Email
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