A little over a month into President Donald Trump’s new tariff regime, the verdict is in: Clothes are getting cheaper.
The US Bureau of Labor Statistics on Wednesday reported that apparel prices fell 0.4 percent between April and May, and were down 0.9 percent from a year prior. Inflation overall was estimated at 2.4 percent, in line with expectations.
The data likely reflects pain delayed rather than avoided. Many retailers stocked up before Trump announced a 10 percent tariff on all imports, as well as an additional 30 percent levy on Chinese goods.
Inflation figures also don’t account for hikes that were announced but have yet to kick in. E.l.f. Cosmetics, LVMH, Nike and many others have said they plan to raise prices this summer.
But the downward trend speaks to another truth about fashion’s approach to pricing: The tariffs came at a time when brands were already working overtime to convince reluctant shoppers to keep spending.
Rather than pass along costs, many companies’ instinct is to explore every other option first. Urban Outfitters, Gap and Abercrombie & Fitch fall in that camp, saying they’ll hold off on increasing prices even as they warn of shrinking margins.
And for brands that engaged in years of post-pandemic price hikes, discounting even in the face of tariffs is still the best way to win back customers. Many luxury labels fall in this category, though plenty of mass-market brands are more expensive than they used to be, too.
“Retailers don’t want to scare consumers or the market and suggest they’re [raising] prices,” said Sonia Lapinsky, partner at retail consultancy Alix Partners. “They’re refraining as much as possible, they’re not talking as much as possible.”
Fashion’s Falling Prices
Apparel prices fell month on month between April and May, and nearly 1 percent in May year on year. The rate of price increases began slowing in 2023, and then declining early this year.
This doesn’t account for the full impact of tariffs on retailers’ margins, which won’t be realised until late summer or fall. That is when prices could get “wildly volatile,” because of brands’ individual approaches to pricing in the face of rising costs, said Michael Prendergast, managing director of Alvarez & Marsal Consumer and Retail Group. Some brands will look at this moment as a time to sacrifice margin to gain market share. With expanded margins, thanks to years of rising prices, many retailers are well positioned to absorb the impact.
For now brands are doing everything in their power to keep people shopping and drive traffic, said Lapinsky, including upping discounting throughout April and May.
Beyond categories like footwear that are highly susceptible to tariffs, brands will get specific about where they raise prices — fashion items may have elasticity, but shoppers would see a more obvious change in basic pieces, for example. Likely, after years of experimenting, brands have learned where their limits are.
Planning for the rest of the year is filled with extra risk. Raise prices too much, and kill demand; plan for lower demand and potentially end up with empty shelves. That conundrum will likely come to a head for retailers during back-to-school shopping season.
“We’re likely going to have an inventory issue on one end or the other,” said Lapinsky. “Either we’ve got inventory in the stores that had to be priced at a point that they can’t clear, or retailers may have pulled back and just don’t have what customers are looking for.”
Mood-Swing Shopping
As they make inventory and pricing decisions for the rest of the year, retailers are watching consumer sentiment closely to try to determine whether they’ll have the appetite to spend — and to what degree.
“You have to be cautious of exactly what inventory you’re taking in, given consumer sentiment and how much they’re shopping,” said Jessica Ramírez, co-founder of research firm The Consumer Collective. “If you’re just churning inventory that isn’t a priority on your consumers’ list, you’re not going to do very well.”
After falling to its lowest point in years, consumer sentiment got a slight boost in May. Part of that may be thanks to a comparative settling of the news cycle from April, when Trump first announced, and then temporarily paused, levies.
But even just the feeling of rising prices and uncertainty can put a damper on shoppers’ moods. Plus, more generally, price inflation in other categories will have an impact on consumer appetite to spend on apparel.
“Food and gas prices affect discretionary income,” said Prendergast. “Gas prices are coming down, that’s the good news. The not great news is food continues to rise — that pinches the wallet.”
Trouble is Brewing Elsewhere
The picture of softened demand is clearer in China, the second biggest fashion market after the US.
Earlier this month, China reported consumer prices overall — not just apparel — fell for a fourth consecutive month in May, raising concerns that deflation is here to stay. Meanwhile, wage shrinkage and property value slumps continue.
It’s already having an impact on fashion, reported Reuters: Amid raging price wars, stores are putting merchandise on steep discount — $30 for a Coach handbag at Super Zhuanzhuan, for example. US-based apparel companies operating in China will face more uncertainty in an already challenged market. Trouble abroad could even be felt back home.
“The more that’s happening in the macro, the more concerned the consumer in America is going to be,” said Lapinsky. “We don’t see any end to that in the next few months.”
Though, starting in March, China began ramping up fiscal stimulus. And much remains to be seen about how the Chinese consumer will react, said Ramírez.
Fashion is still in a wait-and-see phase when it comes to price hikes and planning, but the moment of truth could be getting closer.
“Overall retailers are underplaying the effect of what tariffs and inflation are going to do to their sales and EBITDA,” said Prendergast. “We’re advising clients, take the next two years of your revenue and margin plans down, like, take them down and again, use this opportunity to cut costs internally.”
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