Canadian Fashion Brands Build U.S. Warehouses to Escape Tariff Trap

Quick Facts

The U.S. suspended the $800 de minimis exemption on August 29, 2025, forcing Canadian brands to pay $25 or more per order in duties and fees.
Toronto skincare brand Veriphy now ships U.S. orders from a California warehouse and Canadian orders from a separate Canadian facility.
CUSMA-compliant goods are exempt from the current 10% global tariff, making origin documentation a top priority for brands shipping cross-border.

Canadian fashion and beauty brands are opening U.S. fulfillment centers and splitting inventory across the border. The trigger was a series of tariff changes that made cross-border parcel shipping too expensive to sustain.

On March 4, 2025, the U.S. imposed a 25% tariff on most Canadian goods under the International Emergency Economic Powers Act. That rate later rose to 35%. In February 2026, the IEEPA tariff was paused and replaced with a 10% global tariff. Goods compliant with the Canada-United States-Mexico Agreement face no tariff at all.

The blow that hit small brands hardest came on August 29, 2025. That date, the U.S. eliminated the $800 de minimis exemption for all countries, nearly two years ahead of its previously scheduled phase-out date of July 1, 2027. Shipments that once cleared U.S. customs duty-free now carry either a flat fee of $80 to $200 per item or a 30% ad valorem rate.

For a Canadian brand shipping 500 orders a day at $60 per item, the math is severe. Before August 2025, duty costs were zero. After, duties and processing fees add roughly $25 per order, or $12,500 per day. That figure annualizes to approximately $4.5 million in new costs that did not exist the year prior.

The Split-Inventory Fix

The most common response among Canadian brands is to move bulk inventory into U.S. warehouses via consolidated freight. One customs entry covers a full container shipment. Duties are paid once at the container level instead of on each individual parcel.

Veriphy, a skincare brand based in Toronto, adopted this model. The company now ships U.S. orders from a warehouse in California and fulfills Canadian orders from a separate Canadian facility. Before the tariffs, all shipments moved through a single location.

Veriphy CEO Lindsay Nahmiache said the company also extended its production planning cycle. “Normally, the ordering cycle is that we would order six months in advance of needing more materials to produce, but we’ve already started ordering materials 12 months in advance,” Nahmiache said. The company sent a large shipment to its U.S. warehouses in January 2025, before tariffs took effect in February, which bought additional runway.

Nahmiache noted that U.S. sales have since eclipsed Canadian sales. The U.S. market carries roughly 60 times more purchasing power, by one estimate, making continued investment in U.S. operations a straightforward business decision despite the added complexity.

Compliance as Competitive Advantage

CUSMA compliance has become a critical factor in landed cost calculations. Brands with proper country-of-origin documentation in place ship at 0% under the current structure. Brands that did not invest in that documentation earlier are paying 10% on every shipment while they work to catch up.

Canadian designer Krista Norris described the impact on smaller operators. “Removing the de minimis exemption had a very negative effect on small businesses exporting,” Norris said. “Large brands with distribution facilities already in the U.S. would have had it easier, while tariffs affected us just like they did American brands importing products.”

The disparity between large and small brands is significant. Established companies with existing U.S. warehouse infrastructure absorbed the policy change as an operational adjustment. Smaller brands without that infrastructure faced immediate margin pressure with limited options for rapid response.

Broader Industry Pressure

The tariff environment has created forecasting problems across the retail calendar. One executive described the challenge: “Consumer demand can shift dramatically from one market to the next, making it harder for retailers to plan inventory and merchandising strategies with confidence.”

Lululemon CEO Calvin McDonald addressed the issue on the company’s earnings call. “Companies across our industry are looking at various levers to navigate this period, including opportunities across their supply chains, expense management and strategic pricing actions,” McDonald said.

For Canadian brands without the scale of a Lululemon, the options are narrower. Those investing now in U.S. warehouse infrastructure and CUSMA compliance are building cost structures that work under the current rules. Those that wait face compounding cost pressure with each additional shipment.