This week, a look at the chaos of the Trump administration’s tariffs on China, Canada and Mexico, and the strategies brands are leveraging to protect themselves.
The Trump administration’s new tariff policy went into effect this week, and the rollout has been even more chaotic than early analyses predicted.
The administration has been bandying the idea of issuing tariffs on rivals like China and allies like Canada for months, with the initial plan changed multiple times. That has led to weeks of uncertainty among major fashion brands, which have had to come up with strategies on the fly as decisions are made.
As of this week, an additional tariff of 10% has been placed on Chinese imports on top of the 10% instituted in February. Mexico and Canada were both hit with 25% tariffs on most goods, and there is a planned 25% tariff on all imports of aluminum and steel from other countries slated to go into effect on March 12. In April, two more tariffs on cars and agricultural goods are planned at a currently unknown percentage, and Trump has proposed two more tariffs, on lumber and copper.
The scale and unflinching rollout of the tariffs has shocked most analysts, who expected the threat of tariffs would be used to negotiate more favorable deals. But despite historical allies Canada and Mexico abiding by many of the demands made by the Trump administration, the tariffs rolled out anyway.
In a speech on Tuesday, Canadian prime minister Justin Trudeau lambasted the move, urged U.S. consumers to blame Donald Trump for the inevitable rise of prices and cost of goods, and lamented that there would be “no winners” in a trade war between the two countries. Canada, Mexico and China are all implementing retaliatory tariffs on the U.S. Over the next three weeks, Canada may implement the 25% tariff on up to $155 billion worth of American goods.
So, where does that leave fashion brands? Over the last few months, brands like Steve Madden have announced plans to move production away from targeted countries like China. Nearshoring has been an ongoing trend for at least the last three years, but instead of moving production to the U.S., many brands have opted for closer manufacturing hubs like Mexico. That was back when the tariffs seemed most likely to be focused on China, rather than on traditional allies like Mexico and Canada.
“Brands are increasingly going to look for ways to monitor international trade agreements, compare landed costs and scenario-plan based on different tariff changes to make proactive rather than reactive sourcing decisions,” said Tarun Chandrasekhar, president and chief product officer at commerce data company Syndigo. “I expect apparel retailers will keep alternate supply chain options open to be able to pivot and source from multiple suppliers from multiple countries to spread out the risk of tariffs.”
Canada is home to a number of high profile fashion brands, including Lululemon, Aritzia and Arc’teryx. Arc’teryx produces many of its clothes in Canada, while Lululemon has production facilities around the world. On an earnings call in December, Lululemon CFO Meghan Frank said, “We outsource approximately 3% of goods from China, so exposure there is relatively small. Our sourcing from Mexico is less than half a percentage, and we don’t source anything from Canada.”
She added that if tariffs were levied on all imports into the U.S., that would have a far greater impact on Lululemon’s bottom line.
Tosha Hays, evp of Florida-based women’s swim and resort brand Venus, said all brands should be thoroughly re-evaluating their supply chain strategies right now.
“China manufacturers have been a go-to for novelty fashion and smaller-quantity orders,” she said. “Much of my novelty fashion designs that require specialty fabric or trim come from China. Novelty swim with special surface design or trims also are a China specialty. Now, we have to quickly reevaluate our sources and suppliers and find those who can service these needs.”
Moving production to another country to avoid tariffs is expensive and, according to third-party logistics expert Brendan Heegan, it “requires a good crystal ball.” Heegan is the CEO of a 3PL called Boxzooka. He told Glossy there are more practical, immediate things brands can do than try to move their entire supply chain overnight.
“Brands have to stay focused on their core competencies and be the best in their vertical, concentrating on the top selling items,” Heegan said. “It’s a good idea to limit the breadth of SKUs and focus only on the top sellers. Increase production and demand discounts when manufacturing higher quantities. Ask factories to honor lower prices for a high volume commitment, but spread it over multiple manufacturing runs, or store overseas and only pay for what’s shipped at any given time. As always, there’s the option of passing some of the costs on to the consumer.”
Melanie DiSalvo, founder of supply chain consultancy Virtue + Vice, which has worked with brands like Abercrombie & Fitch and Carhartt, agreed that nearshoring now is not likely to be a massive help.
“First of all, even if tariffs double again, in most cases, the cost of the products will still be cheaper than producing in America,” she said. “So re-shoring is not really an option. And, at the end of the day, you don’t know what country is going to get hit next. I am advising people not to be reactionary and to diversify their supply chains slowly.”
Executive moves
- On Wednesday, Kelly Cook was announced as David’s Bridal’s new CEO, taking over for James Marcum. To help the company grow, Cook is hoping to capitalize on the fact that 90% of all U.S. brides interact with David’s Bridal in some way.
- Lex van de Vliet is taking over as CEO of the Dutch eyewear brand Ace & Tate as founder Mark de Lange steps down from the role 12 years after founding the brand.
- The 26-year-old fashion magazine V announced new editorial leadership this week. Nicola Formichetti is the new fashion director-at-large, Anna Trevelyan is senior fashion editor and Kevin Ponce is the new editor.
Other news to know
- Capri Holdings, owner of brands including Versace and Michael Kors, saw its stock price surge this week on rumors that it may sell Versace to Prada. Bloomberg reported that Prada may pay $1.6 billion for Versace and that the deal could be finalized this month.
- Adidas reported full-year earnings for 2024 this week, which showed the brand did much better last year than even its own estimates predicted. Revenue grew 12%, where Adidas had projected a 10% increase.
- Western boots brand Tecovas opened its first store in New York City this week as part of a broader retail expansion. It aims to reach $1 billion in sales by 2030.
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