With each new presidential administration comes changes to policy that will inevitably impact the fashion industry. In the wake of executive orders signed by President Trump, fashion companies are having to take a hard look at how to reconfigure their production and sourcing systems to avoid rising import costs. As executives try to navigate these changes, such as increasing tariffs and elimination of the de minimis threshold, fashion retailers are looking to expand their procurement sources, lower manufacturing costs and shift their target markets.
Retailers plan to diversify sourcing and shift consumer focus
The president has signed a slew of executive orders implementing tariffs on imports from Canada, Mexico and China. The tariffs on Mexico and Canada are delayed until March, however the duties on Chinese goods have already gone into effect. Because of this, major retailers such as Estée Lauder are aiming to diversify sourcing parties and procurement within Asia to minimize the impact of these tariffs. In this expansion, India is likely to become a focus due to the country’s manufacturing infrastructure and government incentives used to attract foreign investment. However, challenges such as a complex regulatory framework, such as outdated labor laws, and inconsistent labor output may limit the success of this move towards India as a longtime partner. Vietnam also has significant potential due to its competitive labor costs and growing expertise in textiles manufacturing. The only con to this is Vietnam contains a much smaller labor pool than that of China.
Larger companies such as the LVMH and PVH have been acquiring factories in the US, Mexico and Canada since COVID in order to bypass these tariffs or pay reduced tariffs under the USMCA (United States-Mexico-Canada Agreement). Independent brands who are not under larger corporations are struggling with securing domestic production due to their lower production volumes which make them less attractive partners to manufacturers.
Fashion companies are also focusing on planning and optimizing stock. Practices such as realigning inventory to match real time demand can mitigate the risks of overproduction as well as excess backstock. Leveraging predictive analytics and AI-driven supply chain systems can re-engineer production schedules with consumer demand while also helping to reduce waste.
Another approach brands are taking includes actively revamping their focus so they can curate towards those with larger disposable income. While Gen-Z and Millennials have been the major target market for the fashion industry over the past ten years, there are signs pointing toward a shift to the “Silver Generation”. Marketing may start to appeal to the growing population of people over the age of 50, since younger generations alone will not be able to grow sales with the market continuing to slow down. This shift to marketing to older generations will be beneficial for brands long term. While Gen-Z is an important part of the retail market, their fluctuating levels of income due to an impending recession might result in them having less means for non-essential spending. Value-driven consumers will also be a focused target of these retailers. Brand positioning will play a key role in capturing the attention of shoppers who prioritize the value of a company’s offering and are increasingly price sensitive due to recent periods of high inflation. This could result in more expansive customer loyalty systems and perks that will not only draw in new customers but strengthen relationships with existing customers as well.
Tariff changes and elimination of de minimis will impact consumers
The direct cost of goods for consumers will be directly impacted by the implementation of import tariffs. Moving production will lead to higher short-term costs as luxury brands invest in facilities, train workers and adjust logistics – all of which will be reflected in prices that consumers are paying. Luxury shoppers are not the only group that will feel these changes. While non-luxury fashion is predicted to drive the small increase in economic profit this year, removal of the de minimis provision will deeply affect lower-end brands and their consumers. The de minimis threshold allowed companies the option to avoid duties and taxes for imports less than $800. The rule went into effect after the Tariff Act of 1930 and was revoked on February 1, 2025. This meant fast fashion giants such as Shein and Temu greatly benefitted. Outside of these major e-commerce players, smaller fashion and beauty retailers have relied on this provision in order to maximize their international supply chains and accelerate their direct-to-consumer shipping. The President has temporarily restored de minimis as of February 7 for small packages shipped from China but “shall cease to be available for such articles upon notification…that adequate systems are in place to fully and expediently process and collect tariff revenue”, according to this article from CNBC. With the suspension of de minimis, companies will need to reassess methods of streamline logistics as well as how to keep overhead costs low.
Consumers may also face a more covert downside with tariffs, changes in clothing design. In an attempt to lower production costs, designers could implement specific aesthetic elements such as “cold shoulder” tops, crop tops, halter styles and garments without defined arm holes, research from Vogue Business states. These small changes can greatly reduce production costs in fashion, impacting luxury brands’ creative breadth and overall trend cycles in the upcoming years. While non-luxury consumers may not immediately recognize the design shifts that occur as a result of these tariffs, luxury clientele and buyers for high-end markets will notice a loss in diverse designs. This could lead to a deeper desire for pricey tailor-made items. Specialized clothing companies with various niches may have an opportunity to fill this gap within the market.
Brands and consumers will need to rethink their approaches to the retail market
Heading into 2025, it has already been predicted the luxury market is in the wake of slowing down, as the global luxury market is only forecasted to grow up to 4% according to Bain. With tariffs now in place, the market is expected to suffer even greater than predicted. As brands re-examine sourcing and production logistics, the already price-sensitive consumer population will bear the brunt of the rising costs. This might result in large changes regarding consumer’s shopping habits as the centralized focus on American-produced goods and consumer spending decreases overall. With more changes likely to come, it will be interesting to see how brands and consumers navigate the retail market. There are sure to be external factors that will continue putting financial pressure on both sides.