Retailers say 2026 tariff landscape will look 'much different'

Some retailers are currently absorbing tariffs to avoid raising prices for shoppers, but if trade tensions with countries like India and Brazil continue, higher costs will eventually be passed on to consumers.

Naveen Jaggi, president of retail advisory services at JLL, discusses how this volatile environment is impacting retail pricing and consumer behavior.

To watch more expert insights and analysis on the latest market action, check out more Asking for a Trend.

Video Transcript

00:00 Speaker A

I think most retailers recognize that the tariff environment we're in is not something that's sustainable in the long term. It's a political and negotiation play. So as a result, retailers will say we don't want to scare the consumer off and make prices to the point where they're sensitive to price increases, so we'll absorb them. So we may see some hits on the bottom line by retailers, but that's short term. Most every retailer I speak to thinks that the market will be different, much different from a tariff environment next year. So they're willing to hold on those prices and not push those to the consumer aggressively.

00:35 Speaker B

Do you think there's a point when retailers aren't going to be able to do that and they're going to hit a point where they have to pass on some of these costs?

00:42 Speaker A

Absolutely, and if you look at the stuff that's being made in India, right, so we just saw recently that Brazil and India were two countries that got big, pretty significant tariff hikes. If those things don't subside by the fall and winter, those prices will be passed on to consumers. So to me, I'm watching Q1 and Q2, watching the news. If those countries come to the table and negotiate well, you'll have a good story. But if we don't see those negotiations go well for the consumer or for the retailer, prices will go up and that will have a lag on consumer confidence.

01:11 Speaker B

And you were just saying how you speak with retailers pretty consistently. What else are you hearing? What are the takeaways from you about this really volatile environment where it is hard to plan for the future?

01:23 Speaker A

Think long term. They're not going to react in the moment. They know consumers for the most part are a bit confused about the environment right now. They're saying, "Wait a minute, our tariffs going up? Which countries' tariffs are going up?" They don't know exactly what product will be impacted. So in that environment, the general consensus is, "Let's not shock the consumer with too much price increases." And the consumer, by the way, is pretty darn resilient, as we said over and over again. Last piece to remember: about 20% of the top household income, uh uh income earners in America represent about 50% of all consumer spend. They're the ones doing doing great, like their 401(k)s are doing great, the 403(b)s are doing great, the markets are up, almost every major index is either up or at near-term highs. They're doing well. As long as that top 20% continues to spend money, the overall landscape looks pretty darn good. Now, long term, you're worried about the wobbly labor environment, that could impact that middle-market consumer. That's saying, "Wait a minute, if you look at Chipotle and you look at Cava, those things are higher-priced items, will they start moving back to KFC? Will they start moving back to McDonald's? Will they start moving back to something a little more affordable?" That's what I think we need to be watching in the Q3, Q4, Q1 '26 environment.

02:58 Speaker B

And to that point, we just got Cava earnings, it's down around 20% right now because they are struggling. Now, you bring up a good point about the bifurcation of the US consumer. Higher income, doing well, middle, lower, are starting to struggle a bit. How have you seen that reflected in some of the data that you guys do, who you talk to? And what's the concern longer term if we continue to see that bifurcation?

03:27 Speaker A

So I think my biggest concern is that the US consumer, if they feel like their environment is not in their favor, right? So what we heard was that the market should be in their favor, that the president's going to make laws and policies to benefit middle America. If those don't develop in '26, and they start showing some sense of lack of confidence in that environment, you'll see the consumer start to pull back. Because the jobs aren't there like they were supposed to be there, or they were promised to be there. If you put that doubt in the consumer's mind, that's when you see the retailers start to worry about their plans for '26 and '27. Related Videos

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