Tariffs Are Squeezing Apparel Margins. Retailers Are Trying Not to Pass It On.

The average tariff rate on United States apparel imports reached 35.1 percent in December 2025, up from 14.7 percent at the start of that year. On February 20, 2026, the Supreme Court struck down the IEEPA reciprocal tariffs, and tariff stacking eased considerably, leaving apparel exporting countries facing a flat 10 percent Section 122 tariff. Costs are still well above where they stood two years ago.

Who is actually paying for it

McKinsey estimates tariffs have driven short term sourcing price increases of roughly 35 percent for apparel and 37 percent for leather goods. The effect shows up directly in company disclosures. Tapestry, the parent of Coach and Kate Spade, has put the total expected hit to profitability at around 160 million dollars, close to 230 basis points of margin. Victoria's Secret reported a net tariff impact of roughly 100 million dollars in 2025. A KPMG survey found 82 percent of companies reporting lower gross margins as a result of trade pressure, and 22 percent reporting a decline of more than 10 percentage points.

Absorb first, raise prices later

Despite those numbers, most United States apparel companies are still trying to avoid across the board price increases, worried that raising prices too quickly will cost them more in lost volume than tariffs are already costing them in margin. The more common approach, according to sourcing analysts, is a mix of gradual, targeted price increases, renegotiated supplier terms, and a push to diversify manufacturing away from the highest tariff countries.

That diversification push is not new. It has been underway since the first round of tariff increases years ago. What has changed in 2026 is the urgency: companies that treated supplier diversification as a hedge are now treating it as core to protecting margin, not a precaution held in reserve for a future disruption.