The retail sector may have dodged the worst of the trade war, for now. A temporary reduction in U.S.–China tariffs has slowed the bleeding, but the industry’s larger concerns are far from over. With price hikes looming, guidance withdrawals mounting, and inventory timelines closing in, many retailers are bracing for a turbulent second half of the year. 

The 90-day tariff pause, which lowered duties from 145% to 30%, may have bought some time, but it hasn’t solved the deeper issues of consumer fatigue and global supply chain friction. A financial analyst from Horizon28, Wendy Waalen, explores the longer-term risks facing the retail landscape—and why investors still need to tread carefully as uncertainty lingers.

Guidance Vanishes as Tariff Tensions Continue

Several retailers, including American Eagle, have pulled their 2025 guidance in recent weeks, citing macroeconomic instability and trade policy ambiguity. While some of the products currently on shelves were imported before the tariff increase, economists say the real cost impact will hit later this summer and into the fall, when newly taxed inventory arrives.

Retailers generally carry about six weeks of U.S.-based inventory, according to analysts. That means higher tariffs imposed in April will filter into consumer prices just as back-to-school and holiday seasons ramp up, potentially forcing brands to pass on costs to inflation-weary shoppers.

Muted Inflation Data Doesn’t Tell the Whole Story

April’s Consumer Price Index (CPI) showed a 0.2% decline in apparel prices and a 0.5% decline in footwear, suggesting that retail prices haven’t yet reacted to the new tariff environment. But this softness may be temporary, as retailers continue selling older inventory purchased before the latest policy shifts.

By autumn, those declines may reverse, particularly if supply chain pressure builds or consumer stimulus efforts fall short. As one retail economist warned, “We’re in the calm before the storm. The CPI will reflect the real impact of these tariffs in Q3 and Q4.”

Winners in the Margin Game: Off-Price and Agile Operators

Investors are now reassessing which brands are most likely to weather a prolonged period of margin compression. Off-price retailers like Ross Stores (ROST) and TJX Companies have emerged as relative winners, supported by consumer shifts toward value shopping. Analysts believe that brands with low-cost structures and flexible supply chains are best positioned to adapt.

Companies like Abercrombie & Fitch, which have relocated much of their production outside China, are getting renewed attention. The brand’s ability to control costs while maintaining relevance with Gen Z shoppers has become a critical advantage. Similarly, Crocs has been highlighted for its low material costs and simpler manufacturing model, giving it more room to absorb price hikes without compromising profitability.

Capri, Nike, and the Tariff Diversification Playbook

Luxury and sportswear brands are also being selectively favored, provided they’ve taken steps to diversify sourcing and mitigate tariff risks.

• Capri Holdings, owner of Michael Kors and Jimmy Choo, is attracting investor interest after its $1.375 billion sale of Versace to Prada, which strengthens its balance sheet and shifts the company into net cash territory.
• Nike, the world’s largest publicly traded apparel brand, has reduced its exposure to Chinese manufacturing to just 11%, down from significantly higher levels in previous years. The company now sources 44% of its goods from Vietnam and 21% from Indonesia, and it sells heavily into foreign markets, helping it hedge against domestic trade shocks.

These moves are being viewed as textbook examples of how supply chain diversification can buffer against geopolitical uncertainty.

Who’s Most at Risk? The Traditional Department Store Model

Not all retailers have been able to adjust. Legacy chains like Macy’s and Kohl’s remain highly dependent on imported merchandise, making them vulnerable if tariffs rise again after the 90-day truce ends.

Analysts warn that these stores are particularly exposed, not only because of their import-heavy inventory, but also due to their slower adaptation to digital sales channels and shifting consumer preferences.

As one market strategist explained, “Department stores are playing defense in a market that demands agility. Without cost control or diversified supply chains, they’re at a structural disadvantage.”

The Unknowns Still Weigh Heavy on Retail

Though the tariff pause has delayed the full impact of rising costs, it hasn’t erased concerns. There’s no guarantee that a permanent trade deal will be reached, and the risk of tariff escalation remains high, especially if geopolitical tensions flare once more.

Some analysts have compared the potential fallout to “pandemic-style supply chain disruptions”, which could result in widespread inventory shortages and pricing volatility, particularly in categories like electronics, apparel, and footwear.

Retailers are also grappling with shaky consumer confidence, with spending patterns more erratic as shoppers navigate stubborn inflation, housing uncertainty, and fluctuating interest rates.

Conclusion: The Margin Squeeze Is Just Beginning

For retailers, the landscape ahead is riddled with cost pressures, shifting policy timelines, and unpredictable demand. The temporary tariff reprieve has eased immediate concerns but failed to eliminate the structural risks facing an industry that relies heavily on global imports and lean margins.

As brands prepare for a volatile second half of 2025, success may depend less on bold expansion and more on nimble cost management, supply chain resilience, and brand loyalty. For investors, the challenge lies in identifying which companies can walk that tightrope, without losing their balance when the tariffs return.