NRF State of Retail & the Consumer

Retail's Volatile Horizon

The U.S. retail industry enters 2026 amid economic headwinds that have been building since the post-pandemic recovery. Inflation, hovering between 2.3% and 4.8% based on core PCE forecasts, continues to erode consumer purchasing power. Tariffs, implemented in waves since 2025, have shifted costs downstream, with consumers absorbing 55% to 70% of the burden according to Goldman Sachs estimates. This has led to a marked slowdown in real personal consumption expenditure, dropping from 2.5%-3% annual growth in 2023-2024 to about 1.5% this year, as noted by Moody's.

Retailers, particularly in discretionary sectors like fashion, anticipate low single-digit growth overall. Bain projects U.S. retail sales to rise 3.5%, a dip from 2025's 4%, with volume gains minimal and much of the increase tied to price hikes rather than demand. This dynamic affects a wide swath of stakeholders: middle-income households, already anxious about finances (32% per NerdWallet's 2026 outlook), are trading out luxuries for essentials, impacting chains from apparel to dining. Small retailers, lacking scale for AI investments, face steeper risks, with CEO turnover spiking 116% in 2025 as leaders grapple with these pressures.

Beyond economics, technology introduces both opportunity and peril. AI adoption has surged, with 87% of retailers deploying it in at least one area and 60% planning increased spending. This accelerates e-commerce, expected to hit $7.9 trillion globally by 2028, but raises non-obvious tensions. Privacy concerns in AI personalization clash with demands for tailored experiences, especially among Gen Z shoppers who prefer in-store browsing yet rely on social commerce projected at $70 billion in U.S. sales. Supply chain resilience, tested by geopolitical disruptions, pits nearshoring against higher costs— a trade-off where delays could cost millions, as seen in recent state-sponsored cyber-attacks affecting 77% of retail legal teams surveyed by Shoosmiths.

Counterarguments emerge from resilient segments. Value-oriented retailers like discounters thrive as consumers seek 'less but better,' favoring premium frozen goods over eating out. Yet, this masks broader vulnerabilities: an AI bubble, feared by market watchers amid VIX spikes to 26.3 in November 2025, could deflate investments if overhyped tools fail to deliver. Regulatory scrutiny on traceability, via initiatives like Digital Product Passports, adds compliance costs, potentially widening the gap between agile giants and laggards.