British retailers will have to work harder for sales and profits over the next six months as consumers here remain in defensive mood, wary of spending on luxuries and eager to stretch their pounds and pence as far as they can.
The U.K. economy is expected to slow to 1 percent growth this year, down from 1.4 percent in 2025 due to a softening labor market and subdued consumer confidence, according to KPMG UK. While inflation, currently at 3.2 percent, is set to come down in 2026, it has still been eating away at disposable income.
The Labour government’s latest budget was brimming with taxes on businesses and individuals, which will weigh further on brands and retailers. They have already been suffering from the cancellation of tax-free shopping for wealthy foreign tourists, and losing customers to Paris and Milan.
Wounded retailers will also have to sweet-talk local customers into spending what’s left of their incomes.
“Evidence suggests households are tightening their belts ever tighter,” said Rajeev Shaunak, head of consumer at MHA, which specializes in tax, accountancy and other financial advisory services.
Space NK has opened a flagship in Oxford Circus in part of the former Topshop space.
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Shaunak added that “clothing and department stores have struggled with inconsistent demand. For example, clothing sales peaked during the summer months but dropped sharply in the autumn as consumers prioritized ‘needs’ over ‘wants.’ The struggle is not just about price, but about relevance. With discretionary income shrinking, any purchase that isn’t seen as essential is being deferred or canceled entirely.”
In its 2026 U.K. retail outlook, PwC said growth is likely to remain modest, so retailers will need to focus on gaining market by wooing customers with “perks, treats and special moments.” Retailers should also “reimagine the role of physical locations — optimizing the number of stores, introducing experiential formats, and integrating digital touch points to attract and convert customers,” the report said.
Britain’s flagship retailers are doing just that — upgrading their stores, adding new experiential spaces and taking their brands into new territories in a bid to stimulate growth.
In the spring, Selfridges plans to open 40 Duke, a by-invitation-only members’ club with a private terrace and dining room on the store’s fourth floor, in what is currently a staff canteen.
Dior will take over The Corner Shop at Selfridges from Jan. 8 to Feb. 28.
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The space has been earmarked for special shopping experiences and follows the introduction in 2025 of a membership program that focuses on rewarding customers for their time and money spent at the store. Customers who collect enough points will be invited to experiences and events, and eventually work up to VSP, or “Very Selfridges Person” status.
It is also bringing a host of exclusives to the various floors, and to The Corner Shop in particular. As reported, Dior is marking the launch of Jonathan Anderson’s debut collections with a men’s and women’s takeover of The Corner Shop and a set design inspired by the brand’s archives.
The installation will run for nearly two months, from Thursday until Feb. 28, and will be the first time that Dior men’s and womenswear intermingle so closely on the shop floor.
Selfridges will also be showcasing works by the Colombian-born, Sweden-based artist Hank Grüner at its Art Block space on the ground floor and highlighting the work of Alexis Jamet, a French designer and illustrator based in Tokyo. Jamet’s work will be on display at the Selfridges London, Manchester and Birmingham stores in January.
Harvey Nichols completed phase one of its multiyear refurbishment last September, giving the jewelry area a fresh look. As part of the upgrade, the store opened up the windows, which means passersby on Sloane Street and Knightsbridge can look straight into the jewelry area, with its Lego-bright counters, sculptures and chairs.
The space has been designed to meet the “shifting expectations” of today’s shopper, according to Harvey Nichols, and going forward will bring together globally recognized designers, emerging talent and one-of-a-kind objects, “all within an environment that encourages creativity, individuality and discovery.”
Julia Goddard, CEO of Harvey Nichols, has been overseeing the store’s refurbishment.
Courtesy of Harvey Nichols
The store is in the midst of a three-year transformation program aimed at reestablishing it “as a British icon and flagship destination,” and fueling growth and returning to profitability.
Harrods continues to upgrade its first-floor designer womenswear spaces, part of a multiyear plan that began in 2024 and will continue into 2026.
Last July, Dior unveiled a larger ready-to-wear universe on the first floor. The space, which spans more than 5,000 square feet, showcases the seasonal collections including eveningwear, bags, fine jewelry and footwear. For the first time in London, there is also an exceptional range of evening dresses, and two private suites for VIP customers.
Fendi has also extended its ready-to-wear space on the first floor to 1,900 square feet, dividing it into three rooms, two for ready-to-wear and one for accessories.
The new, expanded Fendi space at Harrods.
