Retailers brace for supply chain whiplash as tariffs go into full effect
Retailers are scrambling to rethink sourcing, pricing, and survival strategies as tariffs kick in. About 97% of the clothes and shoes sold in the US are imported, with China being the largest source. Since the ’90s, US brands have shifted manufacturing to low-wage countries like China, Vietnam, and Bangladesh to keep costs down. But even that diversification hasn’t shielded them from recent tariff hikes, including up to 145% on Chinese goods. Analysts expect retailers to get hit hard by tariffs, with rising costs and shrinking margins forcing them to raise prices as consumers are already tightening their belts.
So far…
Nike saw more than $12 billion in market value swoosh away as investors fretted over the sneaker giant’s inventory pileups and tariffs hitting its key manufacturing hubs in China, Vietnam, and Indonesia.
Victoria’s Secret warned last month that 10% tariffs on Chinese imports could cost $10 million to $20 million in operating income. With those levies now at 145%, the impact is now likely to be far worse.
Levi’s tried to downplay tariff troubles, as most of the denim giant’s spring and summer products are already in the US, limiting near-term margin pressure. But the supply chain of those “American” jeans involves Vietnam, Sri Lanka, and of course China.
More optimistically… analysts expect off-price retailers like TJX and Burlington Coat Factory to weather the tariff storm better since they typically stock up on merchandise that retailers already imported.
It’s a race against the clock. Retailers that have placed orders are watching them sit in Chinese ports while they wait to see how the tariffs shake out. We’re also about to see imports arriving at US ports from China fall off a cliff, which means stores risk running out of stock just as consumers begin shopping for back-to-school materials and then the holidays. Wall Street is feeling the heat: the SPDR Retail ETF is down 12% this year, and the consumer discretionary sector, which includes retailers like Nordstrom and Foot Locker, is the worst-performing S&P 500 sector year to date.