After a year of stop-start demand, retailers know better than most that momentum can be as fleeting as it is meaningful.
Profitability in 2026 will hinge on controlling costs that keep rising, even when organic sales do not.
According to ONS figures, retail volumes slipped by 1.1% month on month in October, even while the three-month trend preceding it was 1.1% higher, meaning that, for many retailers, what was anticipated as a pronounced sales peak may have just about broken even.
The pattern is all too familiar: consumers delay spending, seeking out specific discount windows, then splurge later on, essentially just moving the goalposts, not expanding profit margins. The lesson for 2026 is surprisingly simple: retailers will need sharper planning to curtail climbing costs.
The Autumn Budget 2025 outcomes will land, in practical terms, at an awkward moment for retail. This is primarily because several of its key measures start to bite from April 2026, just as demand remains cautious and costs turn up again.
Two measures in particular definitely deserve boardroom attention:
From 1 April 2026, the National Living Wage increases by 4.1% to £12.71 per hour.
Even with consistent sales, profit margins will tighten unless productivity, scheduling, investment in technology or a more varied role mix measurably improves. While higher wages may support household incomes, which could provide a boost to consumer spending, competitive market conditions may limit the ability to pass on the increased wages overhead fully to consumers.
At the same time, business rates are also shifting again from 1 April 2026. That means many retail, hospitality and leisure sites will move onto a lower ongoing multiplier, rather than another short-term relief patch.
For smaller high street premises, this should ease the bill, but bigger stores and distribution hubs could still see costs rise if their rateable values have climbed.
Either way, rates are no longer a background overhead that can be curtailed until convenient; they are now, more than ever, something to model early, site by site, so there are no surprises in next year’s cash flow.
Inflation has eased, but retail is not poised to walk into an easy 2026. Shop price inflation may have slowed to 0.6% year on year in November 2025, but food prices were still roughly 3% higher than this time last year, according to the British Retail Consortium (BRC).
That mixture matters, especially at scale. It tells us, firstly, that price competition is not going anywhere, especially in largely discretionary categories where shoppers can pause, switch or wait for a deal before clicking that all-important ‘add to cart’ button.
Secondly, it suggests many retailers have been absorbing cost rises internally, rather than pushing them onto customers. The BRC expects price pressure to pick up again next year, as wages and wider operating costs filter through, meaning that, for many, price points will need to shift in tandem with rising costs. Starting incremental increases now would be easier to digest than larger jumps later on.
For finance teams, the takeaway is somewhat straightforward: let us assume that shoppers will remain acutely price sensitive, act on the assertion that promotions will stay busy (albeit on a sporadic and event-based level), and plan your margins accordingly.
It’s now firmly established that a prominent online presence is no longer a ‘nice to have’. Even the high street giant Primark shook off the shackles of purely bricks and mortar sales in 2022 to expand online - an area in which they were conspicuously lacking and persistently resistant for years.
And who can blame them for this about-turn? Consider that, in October 2025, internet sales were almost a third (about 28%) of all UK retail sales, and people spent 4.8% more money online in October 2025 than they did in October 2024, according to ONS statistics. The pattern is clear: the online market share is on the up and will likely continue to aggregate.
With this in mind, almost every mid-market retailer is now running two shops at once - one you can walk into and one you enter through the search bar. Both cost money to keep open, and both stress the need to prioritise fulfilment, returns, last-mile delivery and real-time stock accuracy, which all pull on margin, even when sales look healthy.
With roughly one in eight retail units on the Great British high street sitting empty, according to CBRE figures, the retailers who look set to perform best in 2026 will be the ones who can see profit by channel and by journey, not just at the top line. A store can still be a brand asset, but it has to firmly earn its place with sales in the ledgers as well as footfall on the pavement.
How do you get ready for 2026 without trying to predict every wobble in weekly demand?
Firstly, rebuild your 2026 budget on what you already know is coming: higher payroll from the April National Living Wage rise and a moving business rates bill after revaluation.
Next, make bricks and clicks earn their keep. Map delivery and returns costs end to end, trim cash-hungry stock-keeping units, and fix return incentives that quietly drain margin.
Then, get ahead of property rates revaluation. Work out ahead of time which of your sites might see rates rise or fall, so you can budget properly, challenge values if needed, and avoid nasty surprises to cash flow in April.
Finally, treat shrinkage and productivity like core finance levers: target security spend where it protects profit most, and schedule labour to meet real demand, not old habits or legacy levels.
2026 comes with value-led shoppers, a higher wage bill, business rates in flux and loss levels that need to be reined in. None of that is comfortable, but retail is an especially resilient sector that excels at adapting early - when there’s a clear business case for it.
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