The tariff fallout
Fashion retail will feel the fallout of US president Donald Trump’s tariff turmoil in 2026. The turbulence of 2025 will continue into the new year as the reality of Trump’s reciprocal tariffs and trade disruptions take effect and redefine the trading landscape.
Fashion retailers are considering diversifying their supply chains further to shift sourcing away from high-tariff countries and will be keeping an eye on the US and China’s deal following ongoing geopolitical tensions and due to many retailers continuing to rely heavily on China for manufacturing. China’s tariff currently stands at 10% until November 2026
As uncertainty around supply chains persists, diversifying reliance across alternative sourcing countries including Vietnam, India, Cambodia and Bangladesh will continue to be a safer bet to lower costs and mitigate risk.
Supply chains in 2025 required agility and resilience so there will be an undoubted focus on having even more real-time visibility and flexibility in order to allow businesses to pivot as and when required.
As the higher duties hike costs across fashion retail’s supply chains, many businesses will also have to battle the response to increased prices for already-price sensitive shoppers.
Budget reality
Budget anticipation dominated fashion retail in 2025, with the tone of 2026 due to be set by its impact.
Retail leaders and experts described chancellor Rachel Reeves’ Autumn Budget on 26 November as “dismal” and “very underwhelming”, with BRC chief executive Helen Dickinson saying retail now faces a “balancing act” moving forward in order to “invest, hire and keep prices affordable” simultaneously.
And while many were pleased to see the permanent reduction in retail business rates, many criticised that this would not make enough of a difference for the sector which contributes so heavily to the economy.
Businesses will battle five new multipliers, a revaluation and a shake-up of reliefs from April 2026.
Fashion retailers will also face further margin squeezes following the increase of the minimum wage for over-21s – which will rise by 4.1% (50p per hour) to £12.71 from April, as announced in the Budget.
Dickinson has also voiced the lack of support provided for the retail sector and its future by the government, adding the Budget did “not go far enough to mitigate the inflationary pressures bearing down on the industry”.
The long-awaited end to the “de minimis” exemption for low-value imports (under £135) was also addressed in the Budget, however the removal of the exemption was delayed until 2029. The delay to this welcomed plan means tax breaks for international retail giants such as Shein and Temu will remain a challenge and continue to pose major competition to UK-based retail players.
Ongoing cost-of-living crisis
2026 marks the fifth year of the ongoing cost-of-living crisis, something that continued to trouble retailers in 2025 and is likely to persist as we enter the new year despite inflation being expected to increase at a lower level. Pressures mean consumers lean more than ever towards a “value-first” mindset, shifting away from non-essential purchases and therefore impacting fashion retailers across the board.
The cost-of-living crisis poses yet more challenges to the sector in 2026 and beyond as brand loyalty remains a challenge, with customers laser-focused on price and perceived value. This also opens vast opportunity for fast-fashion players such as Shein and Primark and as a result, limits tolerances to price increases.
While the luxury sector is forecast to return to growth after a stagnant year, it will also face the struggle of aspirational shoppers holding back due to ongoing pressures and dented consumer confidence, meaning brands and retailers will continue having to work harder than ever to win spend and attract customers via product, quality and innovation.
One way retailers will invest in innovation is through bricks-and-mortar stores. Inditex’s Lefties is plotting its UK store debut, Nike is working on its Oxford Street flagship return and Crew Clothing and White Stuff are also plotting further openings in 2026. The renewal and enhancement of physical stores will be a strategy many fashion retailers will capitalise on in a bid to win consumers, particularly Gen Z who value experience.
Accelerating sustainability legislation
Major overhauls in transparency are on the horizon for 2026 and beyond, as EU sustainability directives loom closer than ever. With greenwashing claims across fashion retail having been rife yet again this year – including the likes of Superdry, Nike and Lacoste having adverts banned due to using the term “sustainable” without providing evidence, as well as fast-fashion giant Shein having been issued a fine over “misleading and omissive” green claims – 2026 will see retailers gearing up for compliance.
EU legislation for Digital Product Passports (DPPs) to become mandatory under its Ecodesign for Sustainable Product Regulation (ESPR) is expected to be finalised in 2026, with implementation expected from 2027/28. UK brands selling to the EU will also need to adopt the standards and comply with other changes including the new ban on destruction of unsold products, due to take effect in July.
The rules, which aim to reduce waste, address greenwashing issues and improve circularity within the fashion industry, will result in fashion retailers having to make more considered decisions, rethink materials, packaging and methods used and require more in depth validation of their sustainability credentials moving forward.
Retailers will also continue to contend with costs that arise from existing legislation such as EPR for packaging, which cost John Lewis Partnership £29m and M&S almost an additional £40m this year.