Year ahead: From discounting to AI, fashion retail braces for a rougher 2026

The fashion industry had a tough 2025. Tariffs, rising prices, and slowing discretionary spending weighed on the industry, and many of those pressures remain as retailers head into the new year.

“Reflecting on 2025…what it really forced was the entrenchment of this idea that that disruption is no longer episodic, but rather is constant, and is the reality of the ecosystem that all organizations in the fashion space are going to have to operate, navigate,” Joanna Rangarajan, managing director at Alvarez & Marsal’s consumer and retail group, told Retail Brew. “That has created what seems to be a springboard for 2026 where there’s the way we’re thinking about it as a systemwide recalibration.”

So what does that recalibration actually look like in 2026? We asked some experts.

Value is king

A major theme in 2025 was the rise of the value-conscious consumer, and that mindset is likely to carry into the year ahead.

Rangarajan cites Alvarez & Marsal’s internal consumer sentiment survey that found that 34% of shoppers intended to spend less going forward, with 43% of them citing tariffs as a major reason.

This also applies to higher income brackets with 24% of those surveyed saying they will pull back on spending as well, creating a challenge both for affordable and luxury retailers. This doesn’t necessarily mean consumers will be opening their wallets freely, Rangarajan said. Instead, they’ll seek out more value-driven channels, including off-price retailers, outlet stores, and private labels.

Meanwhile, discounting is here to stay as a strategy as brands try to communicate their product value to the customer.

“That’s going to be a challenge for brands and retailers, of course, as they’re absorbing higher costs with tariffs, and so that’s going to require brands to be really strategic about how they promote, how they approach discounting and promotion, and even considering kind of a dual playbook model,” Brittany Steiger, associate principal of retail and eCommerce at Mintel, told Retail Brew.

Tariffs will persist

Tariffs drove much of the pricing volatility and confusion in 2025 but according to experts, the full impact may still be ahead.

“In 2026, definitely we’re going to see tariffs and economic uncertainty continue to be the primary challenge, and slower growth is still anticipated ahead, perhaps even slower than 2025 because tariffs didn’t really hit until sort of the back half of 2025,” Steiger said. “So we’re going to see these higher prices continue to push consumers back toward those budget-conscious behaviors—so trading down, delaying purchases, and deal seeking.”

But what does that mean for retailers? Rangarajan believes it’s all about focusing on strategic sourcing as brands will need to continue “pushing for improving efficiencies in their own supply network and within the factories that they’re working with.”

“That can come through automation or digitization and certain points in the process, ultimately to just drive down their overall dutiable value of the product that they’re bringing into the US market, so that the tariff impact can continue to be lessened and lessened,” she said.

All eyes on AI

No look at fashion’s future would be complete without AI, which retailers across the board have turned to to personalize shopping experiences for customers and elevate their own operational systems.

Per Steiger, AI will remain a key lever in 2026, not just to create new ways for consumers to shop, but to help brands become more agile through better forecasting, inventory management, and planning.

“We’ve seen a lot of brands really scale back some of their size options, whether that’s extended sizes or petite or tall options to try and reduce complexity,” Steiger said. “Brands really have an opportunity here as well to use AI to sort of better address those challenges.”

Accurate sizing remains a major opportunity. Mintel data cited by Steiger shows that 80% of Gen Z clothing shoppers expect brands to tailor experiences to individual preferences whether that’s fit, personalized promotions, or product customization that makes shoppers feel seen rather than segmented.