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The Year Ahead: Retail Margins Will Be Under Pressure and Innovation Will Decide Who Comes Out on Top

· Posted on: January 28th 2026 · read

Retailers are heading into 2026 with a lot to think about. This year’s Autumn Budget offered a patchwork of positives and pressures, and for most of the sector, especially fashion and beauty, it’s the cost side of the equation that’s getting heavier.

A Budget that gives with one hand but takes with the other

There are supportive measures: freezes on transport fares and prescriptions, increases to the National Living Wage, pensions, and universal credit, plus the removal of the two-child cap for child allowance. These will help the lowest-income households.

But they don’t do much for the middle-income families who are already tightening their belts. That’s the group many retailers rely on most, and the result is likely to be lower footfall — a trend that’s been building for years and isn’t reversing any time soon.

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Explore our full 2026 Predictions

At the same time, the cost base for retailers is rising:

Wages For a typical high street retailer with around 100 employees, the uplift to NLW alone means £100k+ in extra direct costs.
Business rates Even though the multipliers are down, revised rateable values are mostly up. Many smaller retailers and hospitality operators will still see their bills increase, despite transitional relief.
Capital allowances For retailers with large store networks or hotels, the reduction in writing-down allowances will push tax bills up, especially where there are big carried-forward pools.
Other tax and VAT changes The combination of NIC freezes and VAT rule changes could squeeze sector margins by 3–5%, at a time when there’s not much margin left to give.

None of this quite squares with the optimistic tone of the Chancellor’s announcement.

And for many fashion and cosmetics brands, January rent renewals, traditionally a pressure point, could add another layer of strain. This isn’t doom-mongering; it’s simply being realistic about the sector’s annual cycle and current consumer sentiment.

It’s a mixed outlook for investors

It’s not all negative, but it is uneven. Smaller retail assets, consumer staples, and logistics infrastructure still look attractive. Large-format retail, on the other hand, continues to face some of the toughest structural headwinds.

New green investment packages and export credits for sustainable brands are welcome, but they won’t meaningfully change the picture until 2026 at the earliest — and even then, only for businesses that are able to navigate the grant landscape and actually access the funding.

So, where does the real opportunity lie now?

MHA’s Industry Predictions for 2026

Pricing battles won’t be sustainable in a year when every cost line is rising. The retailers that come out ahead will do so by rethinking how they operate and what their customers value. Technology will be a major part of that.

Automation and AI can help offset labour cost pressures, speed up back-office processes, and support more personalised shopping experiences. For physical stores — especially in fashion and beauty — the focus will shift toward creating reasons to visit. Expect more blended digital-physical experiences, from AR/VR product trials to interactive styling tools.

Sustainability will also move firmly into the mainstream. Resale, repair, refill and recycling aren’t side projects anymore, they’re becoming part of the everyday retail model. For fashion and cosmetics, this lines up neatly with the ESG expectations already shaping consumer choices.

The bottom line

2026 will be a challenging year for margins. Costs are rising, consumer confidence is fragile, and the structural shift away from traditional footfall isn’t slowing down. But there is opportunity in the change.

Retailers that invest in technology, build genuinely sustainable models, and focus on experiences rather than just price will put clear daylight between themselves and the rest of the market.

If you’d like, I can create a shorter version for clients, a more formal board briefing, or shape this into your ESG statement for fashion and cosmetics.