The Trump administration’s tariff policies have hobbled American fashion companies financially and scrambled their sourcing strategies.
New research from University of Delaware professor of fashion and apparel studies Dr. Sheng Lu shows that escalating duties on goods from countries across the globe—along with sustained uncertainty about the future of the tariffs—have majorly disrupted the industry’s sourcing practices and cash flow.
Based on transcripts of the latest earnings calls from about 25 of the nation’s leading publicly traded fashion firms (based on first-quarter performance), the research underscores manifold shifts in where, when and how companies are sourcing goods.
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For one, most companies analyzed plan to further reduce their exposure to China-based sourcing by cultivating more geographically diverse sourcing portfolios featuring countries that can offer flexibility and convenience.
“I have to admit that, based on the earning calls, companies are more eager to move out of China than I expected,” Lu told Sourcing Journal. While many were espousing a wait-and-see approach earlier in the year, that mentality has shifted. The sourcing exodus from China is well underway, with a number of companies reporting that they plan to limit the percentage of procurement from China to the single digits—or move out of the country entirely.
For example, Mike Mathias, chief financial officer at American Eagle, said during an earnings call on May 29 that the company is “further diversifying our supply chain and on track to reduce our sourcing exposure to China to under 10 percent this year, with fall and holiday season down to low single digits.”
Lu cited an unnamed specialty store that said it had been working for some time to relocate resources, estimating its sourcing volume from China would be in the low single digits for the whole of 2025. VF Corp. indicated in late May that it had already strategically diversified and reduced its finished goods procurement from China to less than 2 percent.
“For the first time, so many companies directly, explicitly mentioned that they will only have single-digit sourcing from China. This is something new,” Lu said.
While the shift away from China-dominant sourcing has been underway for some time, diversification is deepening at a rapid rate, now as a means of mitigating ongoing policy uncertainty. Gap CEO Richard Dickson said he expects China’s share of sourcing to drop to less than 3 percent following the end of fiscal 2025.
“Most other countries represent less than 10 percent, Vietnam and Indonesia represented 27 percent and 19 percent of our sourcing last year, respectively, and our goal is for no country to account for more than 25 percent by the end of 2026,” he said in late May.
Ralph Lauren chief financial officer Justin Padicci said on May 22 that the company works with many key suppliers worldwide, and that “No single country accounts for more than 20 percent of our production volumes, with most countries representing a single-digit percentage, including our China production for the U.S.”
Many executives expressed concerns that the escalation in duties has resulted in higher sourcing costs overall, blunting profit margins.
Victoria’s Secret chief financial officer Scott Sekella said on an earnings call on June 11 that the company faces a gross tariff impact of about $120 million, “which assumes 30 percent China tariffs and 10 percent non-China, with tariff mitigation of approximately $70 million for a net impact to fiscal year 2025 of approximately $50 million.”
Meanwhile, Gap’s Dickson said that if 30-percent duties on goods from China and 10-percent tariffs on other countries remain in effect for the rest of the year, the company expects to see a gross incremental cost of $250 million to $300 million.
U.S. fashion brands have leveraged shipping timing, stockpiling of inventory and delaying or canceling orders as tools to mitigate impact. In many cases, companies have pulled forward imports for fall in hopes that they might avoid paying the steepest duties following the expiration of the 90-day pause on reciprocal tariffs on July 9. But doing so makes them liable for paying import taxes now that they wouldn’t have had to shell out for during a “normal” year.
One off-price retailer Lu studied said its reserve inventory represented 48 percent of its total inventory (compared to 40 percent in 2024). “In dollar terms, our reserve inventory was up 31 percent compared to last year, reflecting the great deals we were able to make to get ahead of tariffs,” they said.
Another retailer said their inventory was up by a little under 2 percent from 2024, “driven by inventory strategies implemented to navigate the tariff pressure, including the pull forward of receipts and pack in holding seasonal inventory to be sold in the back half of the year.”
“One thing that struck me is the additional tariff burden,” Lu said of the commentary from executives. “Even though they’re huge companies, having to pay several hundred million (dollars) in additional tariffs is not a small number,” he added.
In spite of the big hits to bottom lines, Lu noted that companies are hesitant about raising prices across the board due to a fear that they might spook cash-strapped consumers. Instead, they’re taking a surgical approach, selectively boosting MSRPs in less price-sensitive categories.
For example, Victoria’s Secret said any price hikes won’t be across all categories, but rolled out on a case-by-case basis. Urban Outfitters will “gently and sparingly raise some prices,” but only in areas that won’t affect the overall customer experience.
While it anticipates a $70-million tariff impact this year, Abercrombie & Fitch CEO Fran Horowitz said the company is “looking for expense efficiencies while remaining on offense in key investment areas.”
“All of this work will have clear impact and based on our current assumptions on tariffs, we are not planning broad-based ticket increases,” she added.
“My suspicion is that companies won’t fully pass over these additional sourcing costs to consumers; it’s not like they don’t want to, it’s that they can’t,” Lu said. “Apparel is such a competitive market, and companies really want to test the price elasticity.”
What’s yet to be seen is how the back-to-school and winter holidays, both traditionally promotion-heavy sales seasons, will shake out now that inventory levels and costs are in flux. Will companies still rely on deep discounts to drive products from shelves—and more importantly, can they afford to?
Lu said it will be important to leverage promotions in a way that still “gives consumers a sense that they’re getting a good deal” even if the price cuts aren’t as deep. “Consumers are price sensitive” in 2025, he said. “They also have to deal with higher costs in their daily life, so they have less budget to go to apparel.”
Amid challenges to sourcing and economic pressures, America’s trade deficit is also widening. While one of the stated goals of the administration’s tariff policy was to drive manufacturing back to the U.S., there’s little evidence that stateside makers are gaining market share from foreign competitors—and in fact, exports are down after growing in April.
The U.S. Census Bureau reported this week that America’s trade gap with the rest of the world expanded by 11.1. percent in May, growing from $87 billion in April to about $96.6 billion. U.S. exports fell about 5 percent, or $9.7 billion, during that timeframe.
Wholesale and retail inventories also saw shifts from the month prior, with wholesale stockpiles decreasing by 0.3 percent and retail inventories increasing at the same rate, belying a slowdown in the flow of goods from wholesalers to retailers from the month prior. This could indicate a slowdown in store sales, or it could be the result of inventory holding for future sales.
