With trade tensions tightening up, the talk of tariffs in fashion and retail is shaking up supply chains across industries. Brands are feeling the pressure as they navigate these new challenges, from rising retail costs to shifting production strategies. Understanding how tariffs will affect your business and what steps to take to stay competitive is crucial.

Gurhan Kok, Founder & CEO of invent.ai, offers key insights into how fashion and retail brands can navigate these growing complexities. In this Q&A, Gurhan answers some of the most pressing questions about fashion tariffs and shares strategies for managing the strain on your business.

How are fashion supply chains adjusting to the new tariffs on China, the EU, Mexico and Canada?

Fashion supply chains don’t change overnight—many companies saw these tariff changes coming and have already started diversifying their production. Companies that have already reduced their reliance on China will be in a better position to handle these changes, while those with inflexible supply chains are more likely to feel the strain. For businesses that still rely heavily on China, the new tariffs will result in increased costs, at least equivalent to the tariff percentage. However, because fashion manufacturing often has long lead times—typically six to nine months—any decisions made now won’t affect supply chains until next season.

The situation is further complicated by changes to the De Minimis Exemption for low-value imports from Mexico and Canada. Many brands have used Mexico as a shipping hub, but with these exemptions removed, they may encounter additional costs and logistical challenges. After all, the industry is already evolving, and those who have been preparing will adapt more easily, while those caught off guard will face higher costs and potential disruptions.

Will brands absorb the tariff costs or pass them onto consumers?

In the short term, brands and retailers are likely to absorb some of the tariff costs to stay competitive, especially for lower-cost, mass-market apparel. Instead of immediately raising prices, many will reduce their margins or find ways to cut costs in other areas. However, in the long run, these costs will eventually be passed on to consumers. Due to supply chain timelines, we won’t see widespread price increases right away—most current inventory was ordered months ago under previous pricing structures. As new production cycles take these tariffs into account, the cost of goods will rise, leading to gradual price increases over the next year. 

Additionally, if brands shift sourcing to higher-cost countries like Mexico or Canada to avoid tariffs from China, this could further increase prices. Given that a significant portion of apparel sold in the U.S. is imported, these tariff increases will add to inflationary pressure in the fashion industry.

How will these tariff-driven price increases affect promotions and discounting in the fashion industry?

Discounts and promotions are key sales tactics aimed at boosting demand and clearing out excess stock. It's unlikely we'll see them fade away, even with inflation on the rise. If baseline prices increase due to higher costs, retailers can still implement promotions starting from a higher price point. 

Should consumer demand decrease because of these price increases, retailers may ramp up promotions to maintain cash flow and move inventory. Keeping a healthy cash cycle means discounting will continue to be a key strategy. On the other hand, stronger brands that don't rely as much on discounts may find it easier to pass on costs to consumers. Because these brands are seen as less interchangeable, they can adjust their prices with less pushback compared to budget or mass-market retailers, who will feel more compelled to use discounts to stimulate sales.

How will consumer sentiment and spending habits change with higher retail prices?

Instead of a sudden jump, price increases will be gradual—around 2–3% each year—making the strain less immediate but still noticeable over time. For budget-conscious shoppers, even small price increases can lead to changes in buying habits. There will likely be a shift toward more strategic spending, with consumers prioritizing discounts, promotions and lower-cost brands. Families and individuals with fixed budgets may cut back on non-essential purchases and focus more on necessities.

Brands with strong pricing power—those with loyal customer bases and a luxury appeal—will be better positioned to pass higher costs onto consumers without significantly hurting demand. However, mass-market and lower-cost retailers, where competition is aggressive and price sensitivity is greater, may find it challenging to raise prices without losing customers. These brands will likely depend more on promotions and cost-cutting strategies to remain competitive.

Are retailers better prepared for tariff-driven price increases compared to previous trade disputes?

Retailers are in a stronger position to manage price increases driven by tariffs now than they were during previous trade disputes. They've faced similar challenges in the past and have learned important lessons, especially during the pandemic when supply chain costs surged. They've learned how to tackle rising costs and have adapted their strategies to handle these pressures more efficiently.

Retailers are better equipped because they anticipated these challenges, especially with the current election cycle affecting the wider economic landscape. While there may still be some last-minute changes, the level of panic seen in previous crises is less likely to occur. Retailers are now more focused on implementing their plans and adapting to the situation.

The bigger question will be how consumers respond to these price increases. It will largely depend on inflation and its effect on overall consumer spending. Although retail demand may dip at times, it also tends to recover in cycles. Even in early 2024, demand was weaker, but it picked up later in the year. Retailers will need to keep a close eye on these trends to adjust their strategies and ensure they are effectively responding to the macroeconomic conditions.

What should fashion and beauty brands prioritize to protect margins and maintain customer loyalty?

Brands should focus on three things: First, brands should think about diversifying where they source products. Moving production out of high-tariff regions can help keep costs down and give them more flexibility if things shift again.

Second, building strong brand loyalty is essential. Brands that have a loyal customer base are in a much better spot to raise prices when they need to, without losing those customers. So it’s important to stay connected and keep delivering exceptional service.

And finally, marketing and merchandising need to stay sharp. Brands that are putting out high-quality products that stay true to who they are will find it a lot easier to manage any price increases without damaging trust.

How do luxury brands differ from mass-market retailers in managing tariff strain?

Luxury brands are in a stronger position than mass-market retailers when it comes to managing tariffs and protecting their supply chains. For starters, luxury brands benefit from a solid brand reputation, which allows them to better cope with rising costs. They typically enjoy higher revenue margins, enabling them to absorb price increases for a longer period before needing to pass those costs on to consumers. In contrast, mass-market retailers operate on tighter margins, making them more susceptible to cost increases.

Additionally, luxury customers are less affected by inflation due to their higher disposable income. A slight price increase is less likely to affect them. On the other hand, budget-conscious shoppers may cut back on spending in response to the same price rise, which can negatively affect demand for mass-market retailers.

How could long-term tariffs reshape the competitive landscape?

Companies that enjoy brand loyalty and resilient supply chains could seize the chance to advance. Brands lacking these advantages may face greater difficulties. They may encounter long-term challenges and could be driven toward consolidation. It's a "survival of the fittest" scenario, where the successful ones will either adapt their supply chains or modify their product offerings to align with changing consumer preferences.

For mass-market retailers and discount brands, the outcome could vary. Some may stand out by providing excellent prices or products that keep customers returning. Discount chains that respond swiftly to market changes might capture market share from those brands that struggle to keep pace. But for others, raising prices without a solid strategy could alienate customers and damage long-term loyalty.

In fashion, customers gravitate toward styles and values that resonate with their needs, and they remain loyal to brands that consistently deliver. If brands can satisfy demand, they will create customer loyalty. But if they fail to do so or can’t adapt to market shifts, that loyalty may quickly disappear.

When it comes to inventory, having the right products available is a major competitive edge. Brands that efficiently manage their supply chains and avoid stock shortages, even in the face of tariffs, will have an advantage. Retailers that struggle in this area risk losing customer loyalty if they can’t meet expectations.

What advice would you offer to brands navigating the growing trade tensions?

If you're a brand trying to navigate increasing trade tensions, there are three main areas to concentrate on: pricing, brand building and supply chain management.

First, it’s important to recognize that these changes are here to stay. More shifts—some beneficial, some not—are likely to occur, and they’re happening at a faster pace. Brands must be ready to respond rapidly and adapt. And in terms of supply chain, agility is key. Companies that can pivot quickly will be better equipped to manage disruptions compared to those with slower, more inflexible systems.

Regarding pricing, it’s not solely about the product's price. Other factors are at play: shipping costs, returns, packaging and even discounts or rebates. Forward-thinking brands will discover ways to maintain an appealing price point while still covering their expenses. It’s about leveraging all available tools and being innovative with pricing strategies.

Lastly, brand loyalty is key. While it takes time to build, loyalty can be created through excellent customer service, offering the right products and meeting customer needs. In challenging times, ensuring that you provide products that align with customer demands at the right price can make a big difference. It’s ultimately all about adopting a “merchant mindset.” Brands need to be strategic not only in business operations but also in how they engage with and fulfill the needs of their customers.