The Retail Think Tank - October Release

The Golden Quarter is unlikely to feel the same for every retailer, or every customer. Some households are watching every pound, while others still have room for the things they feel are worth it. And the same person might save on one purchase, then spend more on another. That makes it particularly important to understand not just who is shopping, but what they are shopping for and why.

Black Friday is increasingly about gamification, with the competition and the savvy consumer. Being much more selective about what to promote and when can help, but we believe the winners will find ways to offer value beyond the price cuts, through early access, exclusive products or something customers cannot get elsewhere.

But winning the Black Friday sale is only step one. A customer who feels recognised, and themselves recognises the value exchange, will come back. That is what will make that first sale most valuable, particularly if spending becomes tighter next year for many.

AI will play a far greater role this year; it is changing where that first encounter happens. Retailers need to be found when shoppers use it to explore their options. But technology does not change every reason we shop. Sometimes we want a quick answer; sometimes we want to browse, ask for advice or find something we had no intention of buying. Great retail must still make room for both.

This is the first truly AI-powered Black Friday. Last year, consumers were still experimenting with AI and getting used to conversational search. Today, we’re giving it more context, trusting it with more decisions, and increasingly relying on it as a shopping companion.

This Black Friday, AI will play a critical role in helping consumers cut through the noise: discovering products, comparing prices, and deciphering whether it’s a deal or a dud.

What does this mean for retailers?

First and foremost, retailers need to be discoverable by LLMs, because that’s where the customer is starting their journey. 

Deals need to be authentic because AI brings a new level of transparency to an already savvy consumer. Within seconds, ChatGPT will surface a product’s full price history, compare it with competing retailers, and decide whether the current price is genuinely worth paying. As consumers, we’ve never been so empowered.

This means retailers need to get a lot smarter about Black Friday. Blanket discounting is a very effective way to destroy margin. Instead, retailers should reward their best customers with early access, exclusive offers, and targeted promotions. An advent calendar, for example, might be offered at a preferential price to customers who spend a minimum amount, creating both a reason to increase basket size and a sense that the offer is limited and worth acting on.

Scarcity sells. Rather than creating the illusion of a discount, retailers need to create genuine exclusivity - giving customers access to something they can’t get elsewhere or giving them a compelling reason to act now. In an AI-powered shopping environment, the opportunity is to create value that can’t be reduced to a price comparison.

Although it is a mixed picture, consumer confidence in the UK has held up surprisingly well in the face of a deteriorating economic backcloth. This is likely to change, as the picture deteriorates in the near future.

Consumer price inflation has already started to pick up, as the consequences of events in the Middle East feed through into energy prices and hence into the wider economy. Ofgem’s Energy Cap rose by 13% in July and a further rise by 4% has been announced for October. However, given the sharp in increase in fuel prices, potentially exacerbated by the possibility of a ban on diesel exports from the US, inflation will rise further, to over 4% by January. This takes consumer price inflation well above the rise in private sector pay, squeezing take-home pay.

The Bank of England held base rates at the September meeting of the MPC, but indicated that an increase was more than likely at the next meeting in November and this is expected to be followed by further increases to ensure that the spike in inflation does not spread into the wider economy and as other central banks take similar action. Higher borrowing costs, especially for those with mortgages that need renewing from previous fixed rate deals will add further pressure on household finances.

The Budget, due to be held on 28 October is unlikely to make matters any better, given the parlous state of public sector finances and it is quite possible that further tax increases will be necessary. This only adds to the pressure from previous decisions to freeze personal tax allowances that apply irrespective of this year’s budget.

None of this paints a rosy picture for household spending. It raises the possibility that Back Friday, right at the end of November will represent a last hurrah for consumers as they try to make the most of any bargains on offer and before they subsequently tighten their belts in the face of this pressure on their finances.

Whilst UK living standards are broadly flat in 2026, consumer sentiment and spending behaviour are becoming increasingly polarised. More affluent households, and those benefiting from rising disposable incomes, are feeling more confident about spending. In contrast, lower-income and financially stretched households continue to feel the impact of the increases in energy and food costs of the past three years.

As a result, 2026 has so far been a year of two halves. Following subdued retail growth through to the end of April, sales were boosted by the World Cup, a hot summer, and stronger seasonal demand. Consequently, shoppers have been feeling relatively more positive than earlier in the year. However, consumer confidence still remains in negative territory (NIQ GfK Consumer Confidence Index -13).

Of particular concern for non-food retailers is a weakening in the major purchase index, suggesting consumers are becoming cautious about discretionary spending. With households looking to save ahead of anticipated increases in energy, fuel, and food costs, demand across discretionary categories such as fashion and home is at risk of softening further.

Within food retail, value growth slowed at the end of September, with volumes declining by -1% as shoppers moderated grocery spending and looked for further savings in their grocery shopping. Retailers responded with more price cuts and targeted loyalty scheme savings.

So, against a backdrop of rising household costs, subdued consumer sentiment and increased promotional activity, NIQ expects the weaker sales momentum that emerged in September to continue into the early part of December, resulting in food retail value growth in Q4 of around +2.0% to +2.5%. Overall, this would result in broadly flat volume growth and a similar performance to that seen in 2025.

As we navigate a pivotal period for the UK retail sector, the implications of the latest Budget are forcing a sharp re-evaluation of property portfolios. Rising operational costs and shifting fiscal policies present clear headwinds, yet they also create a catalyst for strategic investment, filtering the resilient locations from the weak. This structural shift comes at a critical juncture as retailers enter the Golden Quarter. While there is a palpable sense of cautious optimism across the industry, confidence remains fragile, heavily weighed down by consumer spending uncertainties and the immediate pressure to deliver margin-safe seasonal growth.

Central to this performance is the ongoing evolution of channel dynamics. Digital commerce continues to command a powerful market share, compelling retailers to fundamentally refine their omnichannel and fulfilment strategies to ensure physical stores seamlessly support online demand. This integration is particularly evident as Black Friday morphs into a prolonged promotional season. No longer just a single day of footfall surges, this extended peak period requires retail destinations to reposition physical space, utilizing stores as strategic brand anchors and critical logistics hubs rather than just transactional counters.

To navigate these compounding complexities, forward-thinking retailers are increasingly embedding artificial intelligence into their property strategies. By utilizing AI-driven predictive analytics, operators can now optimize location planning, forecast footfall with unprecedented accuracy, and drive structural efficiencies across their entire estate. Ultimately, success in this environment belongs to those who view property not as a fixed liability, but as a dynamic asset responsive to both technological innovation and shifting consumer behaviours.

Working out what the underlying trend in Non-Food Retail spending growth has been this year has been hard enough (because of the impact of the early Easter and then the effect of the World Cup and the summer heatwaves bringing forward some demand), without the continuing problem of the key statistical surveys of spending disagreeing on how strong Non-Food sales growth has been.

The monthly BRC-KPMG Retail Sales survey is the best available guide to Non-Food trends, even though the BRC membership doesn’t cover every sector of the market, so that it may be underestimating overall sales growth a little. But the official ONS Retail Sales figures have clearly been overestimating Non-Food sales growth because of their improbably strong estimates for ‘Small Retailers’ and it is very disappointing that the ONS continues to fail to address this issue.

Nevertheless, it appears that Q3 Non-Food sales were surprisingly resilient, given the cost-of-living pressures impacting many households, and retailers might have hoped to get a boost in Q4 this year from the fact that consumer confidence last November was badly impacted by the uncertainty caused by the Autumn Budget falling so late (November 26th).

However, although the Autumn Budget this year is earlier, on October 28th, the likely package of tax rises and public spending cuts will not help the consumer mood and an even bigger threat to consumer confidence comes on November 5th, when the MPC is likely to raise interest rates by 0.25% (with another increase possible, just before Christmas, on December 17th), given rising inflation.

It therefore looks as if Non-Food Retailers will struggle to grow LFL sales and maintain gross margins over the key Black Friday and Christmas spending periods, with ‘big-ticket’ purchases most likely to be impacted.

This Golden Quarter, retailers should worry less about traffic and more about conversion and uplift. Footfall is still falling, with retail parks the exception, and online visits are down too. Fewer visits mean each one has to count, especially from customers retailers already know.

Treating every customer interaction as if it were the first risks leaving money on the table at a time when margins are razor-thin. That is why retailers that build loyalty as infrastructure, not a programme, will win the ultimate battle: retention.

A personalised offer can shape a basket. Discounting what a customer would have bought anyway is giving away margin. The test is simple: does it lower the cost of acquiring customers or lift their lifetime value? Retailers also need to fix the basics, such as poor product information, and fine-tune delivery cost, speed and returns.

AI adds a new urgency to this. Some shoppers will have narrowed down their choice before reaching a retailer’s website or store. Adobe’s US data for July found that AI-referred shoppers converted 60% better and generated 53% more revenue per visit than other traffic. It is early evidence from one market, but it is a trend that will become harder to ignore.

For retailers, being found now depends on accurate, machine-readable product data, including price, availability, delivery and returns. Shoppers may not yet be ready to let an agent purchase for them. For now, AI is more likely to decide who gets considered; the retailer still has to earn the right to be chosen.