Quick Facts
- Average U.S. apparel import tariffs hit 35.1% in December 2025, up from 14.7% in January 2025.
- Corporate bankruptcy filings topped 717 cases in the first 11 months of 2025, the highest level since 2010 and 14% above 2024.
- PVH Corp. estimates tariff-related costs could reach $195 million in 2026; Victoria’s Secret projected a $100 million net tariff impact in 2025.
Retail margins are being carved up from every direction. Tariffs, raw material prices, freight costs, and third-party fees are combining to create what brand operators are calling death by a thousand cuts, with no single factor bearing all the blame and no easy fix in sight.
The pressure surfaced prominently at a recent Modern Retail Leaders Dinner, where a founder operating brands across fashion and CPG described the bind directly. “From supply chain pressures to raw material costs to shipping costs, there’s all this pressure from the margin standpoint,” the founder said. “We are in a space where pricing is really sensitive. We don’t want to risk our prices just to make up the margin.”
Tariffs Are Now the Top Business Challenge
The numbers back up the frustration. Average tariff rates on U.S. apparel imports reached 35.1% in December 2025, more than double the 14.7% rate recorded in January of the same year. Analysis of roughly 30 major U.S. fashion companies shows tariffs shaved between 0.2% and 4.6% off gross profit margins in fiscal 2025.
Tariffs jumped to the top business challenge for U.S. fashion brands in 2025, up from fourth place in 2024, according to the BoF-McKinsey State of Fashion 2026 Executive Survey. Forty-five percent of fashion executives said sourcing costs will pressure their economic models more than any other factor this year.
Landed costs, which include freight, duties, and handling, currently run 15% to 30% above factory price. Kearney projects global supply chain costs will rise up to 7% above inflation by Q4 2025. “Inventories stockpiled ahead of tariff deadlines are now being depleted, forcing companies to restock at higher prices,” said Kearney partner Suketu Gandhi.
Major Brands Quantify the Damage
Several public companies have put hard numbers to their exposure. Victoria’s Secret reported a projected net tariff impact of $100 million in 2025, up $50 million from prior guidance. Columbia Sportswear said unmitigated tariff costs exceeded $30 million in 2025, equal to roughly 3% to 4% of impact over two years.
PVH Corp., parent of Calvin Klein and Tommy Hilfiger, estimates total tariff-related costs could hit $195 million in 2026, though the company says mitigation measures will offset around 60% of that figure this year. Gap reported tariffs reduced both its gross margin and operating margin by approximately 1.2% for the full year 2025. Macy’s estimates a 0.2% to 0.3% gross profit margin reduction from tariff impacts in 2026.
Mid-Market Brands Face the Sharpest Squeeze
Brands generating between $10 million and $50 million in annual revenue are in the most precarious position. Fixed costs are rising faster than revenue for this cohort, and median EBITDA margins have compressed to roughly 7% to 8%, down sharply from prior years.
The consequences are showing up across the broader retail sector. Approximately 6,000 stores closed in the first half of 2025, vacating 123.7 million square feet of retail space. New store openings announced during the same period totaled just 3,960 locations covering 74.5 million square feet. U.S. business bankruptcies reached 6,574 in the third quarter of 2025 alone, the highest since mid-2014.
Pricing Power Has Its Limits
Seventy-one percent of fashion executives plan to raise prices in the next year, per McKinsey. But selective increases carry risk. The founder at the Modern Retail Leaders Dinner noted the tightrope brands are walking. “We did end up raising our prices a little bit, which releases some pressure, but you can’t go up and down too much in price without confusing the customer,” the founder said.
Albert Varkki, co-founder of leather goods brand Von Baer, said the environment is accelerating pressure on brands with weak fundamentals rather than creating new problems. “Brands that lack a clear value proposition, operational discipline or loyal customer base will struggle regardless of the broader market,” Varkki said.
For operators, the path forward is operational efficiency rather than blanket price hikes. Forty-six percent of fashion executives expect industry conditions to worsen in 2026, up from 39% the prior year. Brands without a plan to cut costs or absorb tariff exposure face a shrinking window to act.
