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Fashion United
4 days ago
- Business
- Fashion United
US fashion industry faces historic price surge following reciprocal tariffs
The retail landscape in the United States underwent a dramatic shift on August 7 as the most comprehensive tariff increases since the 1930s took effect. Thursday saw the reciprocal tariffs come into effect under the Trump administration after months of delays, with most imports into the country being hit with a baseline 10 percent duty. But with higher tariffs on key US trading partners critical to fashion brands' and retailers' supply chains, including including India (50 percent), Brazil (50 percent), Bangladesh (20 percent), China (30 percent), Sri Lanka (20 percent), Cambodia (19 percent), Malaysia (19 percent), and Thailand (19 percent), the average effective tariff rate jumped to 17.3 percent, a level not seen since the Great Depression era of 1935, according to recent data from nonpartisan Yale Budget Lab think tank. Tariffs consumer impact: $2,400 average household loss Consumers across the nation will feel the brunt of this shift, as the price level from all 2025 tariffs increased by 1.8 percent in the short run, equal to an average loss of 2,4000 USD per household for 2025, according to the Yale Budget Lab. Last month, the US Commerce Department reported that apparel and footwear prices were experiencing particular upward pressure due to tariffs and other external factors. Retail prices jumped 2.6 percent in June, up from 2.4 percent in May, with the cost of furniture, toys, and other imported goods increasing. With the reciprocal tariffs 'disproportionately' affecting the apparel, footwear, and textiles sectors, consumers are expected to face a 40 percent price increase in footwear and a 38 percent jump in clothing prices in the short run. The Yale Budget Lab estimates that these price increases will moderate to 19 percent and 17 percent increases for both categories in the long run, respectively. Apparel & footwear prices could increase as much as 40 percent Which makes sense, as tariffs were cited as the most significant factor driving sourcing costs increase for US fashion companies in 2025, according to the 2025 Fashion Industry Benchmarking Study from the United States Fashion Industry Association. Although many fashion businesses chose to swallow the additional taxes during the early days of the Trump administration's trade war, data indicates that brands and retailers are hitting a wall as profit margins tighten and their capacity to maintain price stability diminishes. 'We have no interest in running a lower-margin business, particularly due to tariffs,' said Richard Westenberger, the chief financial officer of children's apparel producer Carter's, during a call with analysts on July 25. 'And if this is something that's going to be a permanent increase to our cost structure, we have to find a way to cover it.' Carter's is not alone, as brands from Adidas to Levi Strauss have announced strategies to counter the impact of tariffs. On July 30, Adidas warned that it would most likely have to increase its prices in the United States, noting that US tariffs would add around 231 million USD in costs to the year's second half. 'We will try to keep the prices on known models (stable) as long as we can, and then do new pricing on products that haven't existed before,' said Bjorn Gulden, CEO of Adidas, during a call with analysts. During the call, Gulden also voiced concerns regarding consumer demand and inflation. 'What I'm mostly worried about, to be honest, is not only the cost, but it's what is going to be the consumer reaction in the market with all these price increases that I think will come not only in our sector, but in general in the US. Should we get mega inflation in the US, things will happen on the demand side, then of course volumes will go down.' Supply chain scramble as geographic diversification accelerates To help drive its costs down and mitigate the impact of tariffs, Adidas, Ralph Lauren, and other fashion companies have been exploring various options, including supply chain diversification. Two of Adidas's largest sourcing hubs in 2024 were Vietnam and Indonesia, with Vietnam producing 27 percent and Indonesia 19 percent of the sportswear brand's total product for 2024. However, with the US introducing a 20 percent tariff on Vietnamese exports and a 19 percent tariff on Indonesian imports, Adidas will likely shift the bulk of its production elsewhere. The sportswear brand is not alone in this strategy. Over 80 percent of respondents from the 2025 Fashion Industry Benchmarking Study stated they are diversifying their sourcing geographically by sourcing from more countries and regions to mitigate the impact of increasing tariffs and policy uncertainty. A further 72 percent said they plan to ramp up duty-free sourcing from countries covered by US free trade agreements and trade preference schemes. Overall, the reciprocal tariffs have disrupted fashion supply chains substantially, with close to 70 percent of respondents noting they have canceled or delayed select sourcing orders due to the tariff increases. Most Spring 2026 orders placed in late 2025 will likely operate under fundamentally different cost structures than those placed just months earlier, requiring retailers to make rapid adjustments to price points, margin expectations, and market positioning strategies. However, this transition may not be as straightforward as it seems, as around 40 percent of respondents added they had reduced investments in crucial areas, such as sustainability and product innovation, due to financial strain from the tariff hikes. The reallocation of resources highlights a troubling secondary effect: while brands scramble to maintain profitability in the face of higher input costs, they're simultaneously sacrificing the very initiatives that could differentiate them in an increasingly competitive market and meet growing consumer demands for responsible business practices. With fashion companies set to grapple with the highest trade barriers since the Great Depression, the ultimate test will be whether they can maintain consumer loyalty while passing along unavoidable cost increases.
Miami Herald
02-05-2025
- Business
- Miami Herald
Struggling retail chain sounds the alarm on growing problem
If you're in the market for a new outfit or addition to your wardrobe, you probably know of a few reliable places to look. The local mall or plaza likely has a few trusty stores where you know you'd find some worthy targets. Related: Major drugstore chain closing hundreds of struggling stores If you're seeking a deal, you might look at your nearest outlet mall or discount retailer, like a Ross or Marshalls. And if you know your size and a few key terms associated with your desired outfit, you're likely to look online, where a whole bounty of brands, deals, and options are to be found. It's easy enough to shop for yourself. It's almost as easy to shop for your spouse or a close friend when you know what you're looking for. But this ease of use doesn't necessarily extend to every member of the family, especially if you haven't met them yet or if their size keeps changing. Image source: Shutterstock For example, it might be a little bit harder to buy clothing for a small child or a baby, particularly if it's your first time. Children's sizes change rapidly, and they go through a lot of clothing quickly. This creates demand, but it's hard to predict, and many parents value different things. To that end, many children's retailers tend to struggle because trust and brand recognition, along with price competition, are paramount for many new parents. More Retail: Walmart, Kohl's raise alarm bells about a growing threatCostco customers frustrated by sneaky new bakery tacticSam's Club making big new Costco-style membership changeLowe's makes a major Costco, Target style shift Many parents pay more attention to things like material, quality, sizing, and trust than they might for a regular clothing brand for themselves. This makes for a particularly competitive, crowded market. Top children's retailers like Gymboree, The Children's Place, and Carter's have faced stiff competition from online giants, which often offer convenience and lower prices for similar quality. It can thus be harder for a niche store to stand out in an already niche market. And even some of the larger brands struggle. Such is the case for Carter's (CRI) , the baby and children's brand popular in malls and shopping plazas. The store has seen declining sales, particularly in the U.S., in recent months. U.S. sales were down over 5% in Q1. Net income dropped by almost 60% to $15.5 million compared to one year prior. Carter's also chose not to provide forward-looking guidance for investors and analysts; it said that President Trump's tariffs and new leadership at the helm of its company made things too murky to predict the future. Related: Major discount retailer closing more stores as it's up for sale The retailer also warned that tariffs could make things worse for customers, too. "This obviously is not our preference," CFO and COO Richard Westenberger said on the company earnings call. "The proposed tariffs have the potential to raise prices on a range of essential items, including our products that families with young children rely upon." Carter's has already raised prices on a number of its more popular brand inventory, including the children's toy line Skip Hop. It has been working to mitigate its reliance on Chinese-imported goods, instead looking at shifting production to lower-tariff areas, including Vietnam and India, though this process will take time. The Arena Media Brands, LLC THESTREET is a registered trademark of TheStreet, Inc.
Yahoo
26-04-2025
- Business
- Yahoo
Carter's Inc (CRI) Q1 2025 Earnings Call Highlights: Navigating Challenges with Strategic Optimism
Net Sales: $630 million, down 5% from last year. Adjusted Operating Income: $35 million, with an adjusted operating margin of 5.6%. Adjusted EPS: $0.66, compared to $1.04 in the first quarter of last year. Gross Margin: 46.2%, a decline of 140 basis points versus last year. SG&A Expenses: $261 million, down 2% from last year. US Retail Sales: Declined 4% with comp sales down about 5%. US Wholesale Sales: Declined 5% year over year. International Sales: Declined 5%, with a $6 million headwind from foreign currency exchange rates. Operating Income: $26 million reported, including $9 million of charges. Cash on Hand: Over $300 million. CapEx: $10 million, down $2 million from last year. Dividend Distribution: $29 million for the quarterly dividend. Warning! GuruFocus has detected 5 Warning Signs with BELFA. Release Date: April 25, 2025 For the complete transcript of the earnings call, please refer to the full earnings call transcript. Carter's Inc (NYSE:CRI) achieved its first-quarter sales and earnings plan, with sales slightly higher than forecasted. The US retail segment, the largest part of the business, met its sales and earnings targets for the quarter. Strong sell-through of seasonal spring and summer products was observed, with the baby category achieving a 4% comp increase. April month-to-date comps in US retail are running up about 13%, indicating strong momentum. The company has a solid balance sheet with over $1 billion in liquidity and over $300 million in cash on hand. First-quarter results were below last year's performance, with a 5% decline in net sales compared to 2024. The gross margin declined by 140 basis points due to pricing investments in US retail and negative FX impacts. Operating income decreased from $55 million last year to $35 million this year, reflecting lower sales and pricing investments. The international segment posted a slight loss in the first quarter, impacted by unfavorable foreign currency exchange rates. Carter's Inc (NYSE:CRI) suspended forward-looking guidance due to leadership transition and economic uncertainty related to proposed tariffs. Q: Doug, as the new CEO, what are your initial thoughts on Carter's and the opportunities for financial improvement? A: Douglas Palladini, CEO, expressed his honor in leading Carter's and highlighted the brand's strong assets, market distribution, and consumer equity. He is optimistic about future success and plans to share a revised strategy soon. Q: Can you explain the estimated annual effective tariff rates on slide 13? Are these current or hypothetical rates? A: Richard Westenberger, CFO, clarified that the rates are hypothetical, based on proposed reciprocal tariffs. While they are not currently in effect, they would significantly increase product costs if implemented. Q: Can Carter's further reduce its reliance on China for production? A: Richard Westenberger, CFO, noted that Carter's has already minimized its China exposure, primarily in accessories and licensed products. While further reduction is possible, it will take time, especially for Skip Hop products that rely on Chinese manufacturing. Q: How is Carter's planning to mitigate the impact of tariffs, and will you raise prices? A: Richard Westenberger, CFO, mentioned ongoing mitigation efforts, including price increases on some items, vendor partnerships, and shifting production to lower-tariff regions. Pricing adjustments are being considered, but the extent depends on consumer tolerance. Q: What is the status of Carter's inventory and how are you adjusting for potential order cancellations? A: Richard Westenberger, CFO, stated that most current inventory is for Spring/Summer, with Fall/Winter and holiday products yet to arrive. Adjustments are modest and primarily affect Carter's own retail business. Wholesale momentum remains strong, with no significant order cancellations observed. For the complete transcript of the earnings call, please refer to the full earnings call transcript. This article first appeared on GuruFocus. Sign in to access your portfolio
