A new report has revealed the impact of Trump's tariffs on the US fashion retail sector will range from price increases to a reduction in retail volumes.

GlobalData’s report titled ‘The impact of tariffs on US retail’ explains the steep tariffs on China, as well as the flat rate of 10% on many other countries come “as a blow upon a bruise for a retail sector that is already under growing pressure from slowing spend and growing consumer uncertainty”.

The report adds: “Planned strategies to switch manufacturing locations have been severely blunted by the global nature of the tariff regime.”

On 9 April, US President Trump declared a full 90-day suspension on the much higher “reciprocal” tariffs for many countries, however uncertainty remains on what will happen once this period ends.

Nearshoring is only partly viable as the US does not have the capacity to take on all overseas production.

The report explains that a self-sufficiency model is virtually impossible, even in the longer-term, because of the interconnected nature of the world economy and the huge levels of demand in the US.

It adds that the problem of tariffs extends well beyond the importation of products for sale. Fashion retailers and other firms will also find the cost of doing business goes up because so many of their inputs are either imported or reliant on imports.

It notes: “These secondary effects won’t be as immediate, but they will act as a drip feed of pushing costs higher.”

As a result, fashion retailers will need to accept and deal with tariffs and they will do so via a variety of responses, including cutting costs, negotiating with suppliers, changing manufacturing compositions and techniques, seeking internal efficiencies, and trying to find new revenue streams.

US consumers show concern for higher fashion prices

GlobalData predicts fashion retailers will use a mix of reducing margins and increasing prices for consumers to combat tariffs in future.

It estimates that footwear could see a 17.2% increase in prices due to the tariffs, while clothing could see a 14.5% increase.

Consumers are already concerned about the impact of tariffs on fashion prices with a GlobalData survey that was conducted ahead of Trump’s tariff announcement highlighting that almost 62% of consumers were worried tariff policies would make fashion more expensive.

Concern was slightly higher among younger fashion shoppers, reflecting their interest and high spending in the category as well as, for some in younger cohorts, their more limited incomes.

Nine key implications of Trump’s tariffs for US fashion retail

1 Costs for fashion retailers will increase

No fashion retailer will be able to completely avoid the impact of tariffs. The cost of doing business for the sector will increase. However, no retailer is completely immune because of the secondary impact of tariffs.

There are no real winners here. Although those retailers that don’t import many
products will be in a stronger position. Because of their model, off-price retailers will also find themselves somewhat shielded from the tariffs.

2 Prices for consumers will increase

Fashion retailers will be forced to pass on at least some of the cost increases to consumers as virtually no fashion retailer will be able to absorb all costs.

Price increases will vary by category. However, those segments with lower
margins will be forced to pass across more of the increase to consumers. As all retailers will be passing across increases, relative competitiveness should
remain in broad balance. However, retailers with weak operating models and weak
balance sheets will lean more heavily into price increases.

3 Scale will become more important

Retailers with scale will have more bargaining power to negotiate with suppliers and will have more levers to pull to find cost savings.

Retailers with scale will have more power to push suppliers to reduce prices. This is
already evident from the actions Walmart has been taking with some of its Chinese
suppliers. Larger retailers also have more levers to pull in terms of finding cost savings to offset the impact of tariffs.

4 Margins will be compressed

Even with cost savings and price increases, it is likely that retailers will have to take something of a hit to margins.

Many retailers will see a hit to margins, but the impact will be heaviest on those that do not have strong value propositions. Here, consumers will be less tolerant of price
increases, which will lead to margin erosion through lower volumes or retailers being less able to pass across price rises. Retailers will look to protect margins through finding efficiencies through automation and streamlining.

5 Retail volumes will decline

Household finances will not be able to absorb further price increases and retail volumes will decline to help balance budgets.

Many households are still grappling with the previous round of inflation and do not have their finances in full order. On top of this, debt levels are high, and the cushion of savings has diminished. This leaves them in a poor state to deal with further price
increases. The response to higher prices will, at least in part, be to cut the number of things purchased. Discretionary retailers will feel the pinch here.

6 Shopping around will increase

Consumers will seek value for money and low prices, which means shopping around will increase – intensifying competition.

Consumers will become more choiceful, which means they will shop around more to
find the right product at the right price. This leaves less room for error for retailers. All aspects of the customer experience need to be optimised as friction becomes more likely to drive sales losses. Online players, like Amazon, may also see gains because of their search functionality and comprehensive ranges.

7 Polarisation will increase

With compressed volumes and rising operating pressures, retail will become more polarised into winners and losers.

With volumes declining and shopping around increasing, the retail environment will
become more polarised between winners and losers. The current trajectories and performances of retail firms will be amplified, and the tariffs may be sufficient to push some weaker retailers over the edge.

8 Fashion retailers may need to adapt ranges

As consumer behaviour changes, retailers will need to optimise their ranges and range structures.

Strong opening price points will become more important. Greater clarity in good,
better, best segmentation will also be key to help the consumer navigate choices. Private label will become more important in grocery, especially in terms of delivering value. Some retailers may thin down ranges to become more efficient in a lower-volume environment.

9 Incremental revenue streams will become more important

Retailers will look to bolster revenue streams from outside of retail to help support both the top and bottom lines.

Fashion retailers have already been exploring revenue streams like retail media and third-party marketplace fees. This will likely intensify to help offset trading pressures. However, the clear advantage in this space still belongs to the giants like Amazon and Walmart, which have the power of huge audiences to drive such revenue streams.

By Just Style