Apparel Firms Feel the Bite From US Import Tariffs

• The major apparel retail and manufacturing firms are cutting their earnings estimates and outlining plans to mitigate the impact of US import tariffs. Prior experience and the implementation of mitigation tactics have meant apparel firms have become less negative about tariffs during the latest quarter and have been consistently less negative than other consumer goods firms.
• We see evidence of front-loading of inventories, with US seaborne imports of apparel having increased by 14.5% year over year in April before reversing in May. However, in June there’s been a 27.3% sequential surge from May as firms seek to pre-empt potential tariff increases in July. Inventories for six large apparel importers increased to 71 days of sales in the latest quarter from 64 days a year earlier, although that’s only in line with 2023 levels.
• Price increases are being used selectively by firms amid concerns about the impact on demand. Market Intelligence forecasts call for the growth in consumer spending on apparel to slow to 1.5% by the first quarter of 2026 from 3.1% in the second quarter of 2025.
• Negotiations with suppliers are being pursued to share the burden of tariffs paid by importers, resulting in US import prices for apparel from mainland China falling by 4.1% in May 2025 compared to February 2025, with prices for imports from Mexico and Latin America also falling.
• Apparel firms have been steadily restructuring their sourcing for the US market, with mainland Chinese firms’ share of US imports of apparel falling to 21.0% in the past 12 months from 33.8% in 2017. Multisourcing has firms tactically reallocate existing sources. Strategic investment in further reshoring appears on hold, which may include sourcing closer to home as is pursued for EU supplies.

The largest apparel retailers and manufacturers operating in the US have flagged the increasing drag from US import duties in conference calls held between early May and the end of June 2025. That comes in the wake of a period of tariff volatility.

As is the case with other consumer goods sectors, including furniture, the apparel sector has been exposed to tariffs in the past and as a result have plans in place. One firm noted that tariffs are just the latest cost increase “as the industry faces a number of inflationary cost pressures from freight and cotton in recent years to tariffs.” 

As a result of prior experience and the implementation of coping strategies, the apparel firms have been consistently less negative than other consumer discretionary firms about tariffs. 

Market Intelligence analysis of earnings call sentiment shows a balance of positive and negative tariff references of minus 3.9% for calls held from April 1 to June 30, improved from minus 5.9% in the prior quarter. For other consumer discretionary firms there was a net minus-5.4% negativity down from 17.4% in the prior quarter.

Firms have indicated that the full impact of tariffs will only be felt during the key selling seasons of back-to-school and winter clothing sales, which also raises the challenge of timing imports and inventory to both mitigate tariff exposures and ensure the latest styles are available.

One firm indicated that it is varying strategy “at different points in time throughout the fiscal year based on taking into consideration the consumer, the back-to-school holiday season,” while another said “do not anticipate that these (mitigation) actions will fully offset incremental costs” in the coming year.

Market Intelligence data shows that there is an extended peak season for US seaborne imports of clothing and footwear, with a pickup in July with drop off in November.

There’s evidence of steady frontloading, with the shipments in the first quarter of 2025 up by 12.7% year over year with a further expansion in April. More recent data shows a marked reversal in May of 12.5%, including a 20.4% drop in shipments specifically to the west coast. 

While imports in the first 26 days of June only rose by 4.6% year over year, they surged 27.3% above May’s level compared to a normal seasonal shift of 8.0% over the prior 10 years which is indicative of rushed shipments before the July tariff deadline.

The build-up in inventories has contributed to extra inventory levels for most firms. Market Intelligence financial data shows a pickup in inventories of six retailers with fiscal closes after April 2, 2025 with an average 71 days of sales in inventory in the most recent quarter, up from 64 days a year earlier. 

While that appears significant, it only returns inventory days to one day more than the same period of 2023, suggesting the inventory build strategy shouldn’t be overstated following a period of cost-cutting based inventory reduction a year earlier.

A reversal of the inventory build-up, combined with a reduction in demand should higher prices damage spending power, is expected to lead to a reduction in US imports of apparel and footwear. Market Intelligence forecasts call for a 6% year over year decline in imports in the second quarter, adjusted for inflation, with an acceleration to a 27% drop in the third quarter.

This only represents a return to pre-tariff front-loading levels, however, with imports in the first quarter of 2026 expected to be 10.8% above the same period of 2024 with south and south-east Asia expected to do better as a result of continued reshoring away from mainland China.

While increasing prices is the simplest route to mitigating tariff costs, few firms have carried out widespread price rises at this stage, in part due to working through existing, pre-tariff inventories. Firms have typically referred to “surgical price increases” or actions to “gently and sparingly raising some prices” or is “calibrated targeted pricing actions where we have pricing power.”

Firms have hung back on increasing prices due to concerns about the impact on spending. The drag from tariffs is expected to lead to a slowing in consumer spending growth. Market Intelligence forecasts expect the annualized rate of personal spending on clothing and footwear to dip by 0.3% in the second quarter of 2025 versus the first quarter, while the year over year growth is expected to slow to 1.5% by the first quarter of 2026 from a 3.1% in the second quarter of 2025.

Firms are reported to be asking for price reductions from their suppliers to share the burden of tariffs, which are physically paid by the importers. One firm is “partnering with our suppliers and our retail partners to mitigate this structural cost increase in order to minimize the overall impact to the consumer,” while another has “reworked costs with vendors,” and a third is “negotiating better terms with our vendors.”

Having a network of suppliers helps in having leverage, with one firm noting it has “a strong and established network of global sourcing partners across more than 30 countries” while another plans to “leverage our dual sourcing capabilities and engage in costing discussions with our vendors and reviewing pricing scenarios.”

There are signs of burden sharing in the form of lower US import prices. The import price for apparel from mainland China was down 4.1% in May 2025 versus February, while prices for imports from Mexico were down by 3.6% and Latin America’s by 2.9%. 

The ASEAN region was an outlier with a rise of 4.28%, which may indicate lower tariff rates and direct substitution away from suppliers from mainland China.

Firms are deploying a mixture of tactical and strategic sourcing decisions following an extended period of supply chain restructuring. 

One firm has acted to “optimize our sourcing mix and allocate production differently across countries” while another is “shifting our countries of origin where possible.”

Restructuring of supply chains has been a long-term process. Mainland China’s share of US of apparel fell to 21.0% in the 12 months to April 30, 2025 from 33.8% in 2017, with ASEAN and South Asia being main winners. In footwear, mainland China’s share fell to 34.7% from 55.6% with ASEAN and particularly Vietnam gaining.

Firms have generally paused strategic investments due to the risk of a “snap-back” of tariffs to pre-tariff pause levels, which in the case of Vietnam would lead to tariffs of 46%.

Firms are also proceeding with investments in global sourcing strategies, with adaptations for the US. One firm has taken a more localized approach, stating 75% of its US sales made in Canada, “virtually all complying with USMCA requirements” with the remainder sourced in Europe.

In contrast to North American sourcing, which is focused on ASEAN and mainland China, sourcing for the EU is more heavily focused on local sources. The EU represented 57% of EU countries’ imports in 2024, while North America was just 4% of North American countries.

This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.