Retail Think Tank Q2 2026

The announcement of agreed terms between the US and Iran, due to be signed on Friday 19 June, has already led to a welcome softening of oil prices. However, the unwinding of the closure of the Strait of Hormuz will take time to restore shipping flows and there are still many potential pitfalls to be overcome in the peace process, so this news is not quite the game-changer that some might suppose.

Government policy remains restrictive, with the tax burden rising sharply and monetary policy tight with base rates still at 3.75%, where they are likely to remain for the time being. This implies that there will be further increases in the average mortgage rate. Inflation is heading back towards 4 percent in the coming months, with OFGEM’s price gap likely to rise by over 10% in July, household incomes are being squeezed.

Any increase in household spending and retail sales will thus have to be funded by either less saving or increased borrowing resulting in continued subdued spending. This is especially true for the poorer households, that have been most affected by the rise in cost inflation.

 And it remains to be seen how the change in Prime Minister later this year will affect developments in both the economy and markets.

From a banking and finance perspective, resilience in retail ultimately revolves around liquidity, balance sheet strength, strategic direction, and leadership. Retail is inherently cyclical, exposed to shifts in consumer confidence, seasonal trading patterns, inflation, supply chain disruption and increasingly unpredictable external shocks. While management teams cannot control these events, they can control the financial capacity of the business to absorb them.

The most resilient retailers are those that maintain sufficient liquidity and funding headroom to withstand periods of weaker trading without compromising investment in their proposition, people or infrastructure. Access to capital should not be viewed solely as a growth enabler, but as a strategic lever that allows optionality during periods of uncertainty. Businesses that enter downturns with strong liquidity are able to make decisions from a position of strength, whereas those with constrained balance sheets often find themselves reacting to events rather than shaping outcomes and capitalising on opportunities.

A key lesson from previous retail cycles is the danger of combining high operational leverage with excessive financial leverage. Retail businesses often operate with significant fixed costs, including property, labour and logistics, while generating relatively thin margins. In such models, earnings can be highly sensitive to relatively small changes in revenue. Layering substantial core debt onto this operating profile can significantly amplify risk and reduce resilience. 

True retail resilience requires a data-driven strategy that seamlessly bridges online agility with physical property asset management. Retailers must view bricks-and-mortar not as a legacy overhead, but as a critical node within an omni-channel ecosystem. Forward-thinking brands utilize precise regression analysis and demographic mapping to rigorously prune underperforming locations while balancing this with the ‘halo effect’, which dictates how physical stores materially drive digital conversions in surrounding catchments. For example, Next has consistently mastered this, leveraging its physical stores to facilitate effortless click-and-collect orders and processing regional returns efficiently to significantly reduce supply chain strains.

Traditional high street presence must be entirely reimagined as an experiential destination rather than a mere point of transaction. Resilient operators are successfully taking over vacant department store boxes and transforming them into vibrant, multi-brand ecosystems under one roof. Frasers Group exemplify this; consolidating premium retail, leisure, and food concepts into single, high-yielding regional flagship hubs. By curating diverse, cross-category brands within these spaces they create a compelling consumer journey that drives sustained footfall and breathes new life into struggling retail destinations. Ultimately, building long-term retail resilience requires a fundamental shift in mindset. Retailers can no longer afford to operate property and digital strategies in isolation. Success belongs to those who treat their property portfolio as a flexible, dynamic capital allocator that can be adjusted rapidly to match shifts in local shopper footfall, thereby ensuring every square foot actively contributes to the wider omni-channel bottom line.

Every retailer became acutely aware of cyber risk last year, but it is important to think even more broadly about operational resilience.  Someone at board level needs to own Operational Resilience and proactively manage it.  Practically what does that mean:

• It needs end-to-end leadership to bring across the teams covering cyber, supply chain, business continuity and more
• The best organisations are developing “scenario libraries” – to build the muscle through working on these together
• It isn’t just the obvious risks; it’s critical to also consider unlikely but high impact risks, or unlikely small risks that are connected and can cascade and magnify

Communication is a critical asset when the unexpected happens – internally, with suppliers, and with customers – delivering to expectations is more important than delivering full services/products; be clear what they can and can’t expect; customers can be more forgiving than you think.

And importantly, this is not just a negative; strong operational resilience can be a growth advantage – for example if it secures availability, improves partnership with suppliers and develops collaborative leadership.

Q2/Q3 Retail Demand:

The current landscape makes sustained quarterly sales growth above 1% difficult, but there are some positives that could support better figures in the next few months. If the US/Iran deal holds, it should ease cost pressures, while the World Cup, good weather and more stable travel conditions could lift spend across food, entertainment, outdoor categories and holidays.

We can expect a continuation of current performance into H2, with improvement possible if oil starts flowing again and consumer confidence stabilises. However, confidence remains vulnerable to geopolitics and domestic political change.

Resilience:

Resilience now means both protecting against risk and enabling adaptability, but the pressure points vary by retail model. Home retail is exposed to the housing market and interest rates; food retail to supplier and weather-related disruption; and travel retail to geopolitics and natural disasters. The common thread is the need to respond quickly when conditions change.

Technology shows this dual challenge. It can improve operations, forecasting and supply chain planning, helping retailers move from reactive problem-solving to proactive decision-making. But it also creates cyber and operational risks, meaning businesses need a strong cybersecurity culture across the organisation.

Commercial resilience is just as important. The strongest operators are not overly dependent on one brand, channel, geography or income stream. Multi-brand models, channel diversification and franchising can all help spread exposure and reduce reliance on a single proposition. Ultimately, resilience is built through commercial discipline, operational flexibility and the ability to anticipate pressure before it reaches the customer.

Resilience is no longer a defensive posture; it is a structural requirement. The latest numbers – total sales up just 1.6% in March – May, non-food barely positive at 0.4% – confirm that above-1% quarterly growth remains hard-won, and that the businesses best able to absorb the pressure are those with scale already embedded. RBC Capital Markets estimates that 55% of US retail growth in 2025 came from just three retailers (Walmart, Amazon and Costco), and roughly two-thirds from the top five, with the same concentration now emerging in European fashion (Inditex and Next) and UK grocery (Tesco and Sainsbury’s). Scale in procurement, logistics and digital investment compounds and that, increasingly, is what operational resilience looks like.

That resilience rests on more than systems. It depends on people: retail will not hire its way out of its capability gaps; it has to reskill its way through them, equipping merchants, operators and frontline teams to work with new tools. Moreover, technology itself is an enabler, not a strategy. It strengthens resilience when it is structural – governed pricing logic, accurate inventory, identity that travels across touchpoints, and forecasting that matches supply to selective demand. It introduces fragility when systems outpace governance: the more they interconnect, the greater the cyber exposure, since integration without security only magnifies vulnerability. Agentic commerce raises those stakes further, demanding machine-readable entitlements and fraud detection calibrated for automated patterns.

The dependency, therefore, cuts both ways. The winners in Q3 and beyond will treat orchestration maturity as a resilience capability, not a transformation project – and remember that calibrated automation beats maximal automation every time. Fast and wrong is still wrong.

Shoppers remained cautious in Q2, and food retailers were only able to drive demand by increased levels of promotions and targeted price cuts. Cool and wet weather in April stalled sales but the late May heatwave and lower food inflation than a year ago helped retail sales to recover.

The good news is that consumers are remarkably resilient; using coping strategies learned over the last decade such as delaying unnecessary spend, switching retailers or channels to save money, and economising without compromising to be able to afford treats and indulgences.

They are also doubling down on value for money and convenience of shop and the fastest growing food channel in 2026 is now Grocery Multiples e-commerce at +9.4% (NIQ Scantrack). Of significance is that same day or rapid delivery of groceries have been used by 1 in 3 households this year (NIQ Homescan Survey).

There are also shifts of spend within categories. Shoppers are buying more fresh foods, health and personal care and healthier drinks and snacks and reducing or delaying purchasing of ambient grocery, household categories, and alcoholic drinks. These trends are indicative of an underlying change in behaviour and retailers are adapting ranges accordingly.

NIQ see these trends continuing in Q3. The summer of sport and further sunshine will boost food spend in July which will offset lower demand into August. There is then an uncertain outlook for September as increases in mortgage and energy costs and the possibility of accelerating food and non-food inflation start to take a bigger share of disposable incomes.

Consumers have demonstrated remarkable resilience despite sustained economic and geopolitical uncertainty. Volatility and disruption are the new normal, but consumers are adapting rather than retreating. Whilst this is generally positive news for retailers, it also raises the bar for businesses that must themselves find ways to navigate persistent cost and demand pressure.

The other challenge for retail is that this behaviour is incredibly nuanced. One consumer may seek value by trading down to a discount supermarket or own-label groceries, while still spending on experiences such as travel or dining out. Others may delay big-ticket discretionary purchases but continue to prioritise brands that align with their values, particularly around quality, sustainability, and trust.

As a result, value is being redefined. It is no longer just about the price tag – but also durability, ethics, and overall utility. Consumers are increasingly “shopping smarter” - embracing resale and preloved channels, investing in longer-lasting products, and increasingly turning to AI and other digital tools to help them secure the best deals. In this context, consumer resilience reflects an evolution in behaviour rather than a contraction in demand.

Q2/Q3 Retail demand:

May was surprisingly strong for Retail sales growth, but that was mainly driven by the heatwave at the end of the month, which pulled seasonal demand forward from the summer. The last few months have still not been easy for the Food Retailers, as shown by the somewhat disappointing Tesco Q1 trading update. The World Cup could distort demand patterns in June/July, although the late kick-off times in North America mean that the main beneficiaries will be the food and drink delivery companies. Looking into the autumn, the threat of higher interest rates (to control inflation) has receded, but rising unemployment and the weak housing market will undermine consumer confidence and last year’s unhelpful speculation pre-Christmas about tax rises is likely to be repeated, unfortunately. The Labour Party leadership crisis is likely to result in a new Chancellor and he or she will instantly face pressure from the bond markets to control the public finances in the November Budget. Christmas is again likely to be tough for retailers.

Resilience:

Looking back, it is striking how many once significant Retail sub-sectors in the mid-1980’s have disappeared, like Mail Order and Newsagents. Perhaps the most striking loss, however, is the once mighty Footwear retailing sector. High Street shoe shops once seemed secure, on the basis that everybody would always need their shoes fitted, but then trainers came along, fashion retailers moved into the business and the market changed... Retailers have to think through all the potential risks and threats and make sure that their business model is resilient, so that they can’t be challenged by new entrants or new behaviours or new processes, to avoid going the same way as all the shoe shops...