Companies will shell out at least $1.2 trillion more in 2025 expenses than they projected at the beginning of the year, according to a new study released by S&P Global Market Intelligence.
Much of that burden will fall to consumers, the firm wrote.
The impact will be global, analysts believe, with at least two-thirds of a $907 billion expense shock to trickle down to shoppers. That’s $592 billion in higher prices for consumers, while the rest is expected to be absorbed by corporations. “With real output declining, consumers are paying more for less,” they wrote.
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What’s more, the analysts cautioned that the estimate is conservative, and smaller companies are more vulnerable to the impacts of tariffs and added supply-chain costs. Firms outside of the analysts’ coverage tend to be smaller and less diversified, therefore, the $1.2 trillion estimate “should be viewed as a floor, not a ceiling.”
“The sources of this trillion-dollar squeeze are broad. Tariffs and trade barriers act as taxes on supply chains and divert cash to governments; logistics delays and freight costs compound the effect,” they added.
According to Dr. Sheng Lu, professor of fashion and apparel studies at the University of Delaware, fashion firms have reported “a more significant impact of the increasing tariffs on their financial performance as the tariff increase expands from China to other countries.”
Lu collected data between August and October based on earnings calls held by about 30 leading U.S. fashion brands and retailers. During the reporting period, which covered the fiscal second quarter and later, many companies expressed that tariffs have risen to the top of the heap when it comes to external challenges to profitability.
For example, American Eagle told investors that it saw about $20 million in impact in Q3 from the duties, and expects to see at least double the impact and pressure to gross margin during Q4. Victoria’s Secret revised its previous guidance—wherein it projected that it would see a net tariff impact of about $100 million for the year—up by $50 million.
In spite of the massive added pressure on companies’ bottom lines, Lu said most firms are still attempting to avoid raising prices across the board due to consumer sensitivity. Shoppers have already pulled back on non-essential purchases, and are trading down to cheaper brands and retailers as they look to save money. Deloitte predicted a 10 percent contraction in consumer spending over the holidays.
As a result, “most companies opt for selective price increases, value-based pricing, and closely monitor consumers’ price sensitivity,” Lu said. “However, price increases could be more noticeable down the road.”
Urban Outfitters hinted in its most recent earnings call that “gentle price increases” were on the horizon. Meanwhile, TJX stated in August that gradual increases in pricing would take effect as the tariffs set in, though the company’s CEO, Ernie L. Herrman, said the TJ Maxx, Marshalls and HomeGoods owner doesn’t want to “turn off customers immediately by seeing a dramatic price shift.”
In order to reconcile some of the cost increases, a large swathe of American fashion companies have frontloaded inventory—a phenomenon first seen during the winter and spring months, which tapered off as the China tariffs took effect. According to Lu, “many U.S. fashion companies have been strategically but cautiously building preemptive stock, adopting a data-driven approach to optimize inventory, and simplifying product assortment” as they move forward into a more mature tariff landscape.
Levi’s ended its last quarter with reported both inventory units and dollar value up 8 percent from last year, which it said was the result of intentional investment ahead of the holidays (along with higher product costs than a year ago, credited to the tariffs). During its earnings call on Oct. 9, the company said it had 70 percent of the product it needed for the holidays. Tommy Hilfiger and Calvin Klein owner PVH Corp. said its inventory at the end of Q2 was up 13 percent from the same period last year.
Other firms are leveraging technology and other tools to manage product procurement and dissemination across markets.
Hanesbrands said it was using AI to facilitate inventory and assortment management along with demand planning and forecasting globally, while Coach and Kate Spade owner Tapestry said it planned to streamline its offerings in a bid to cut costs, reducing the number of handbag styles it offers by 30 percent.
