Retailers Grapple with Tariff Impact as Holiday Season Approaches
As 2025 progresses, retailers and brands are navigating the complex challenges of tariff implementation. Companies are indicating to investors they will strategically raise prices to offset the effects of tariffs. This strategy arrives as consumers face economic uncertainties and the critical holiday shopping season nears, further complicating the balancing act of maintaining profit margins while sustaining consumer demand.
Price Increases: A Last Resort?
Target CEO Brian Cornell emphasized in May that price increases are a "last resort." Meanwhile, executives from major off-price retailers are closely monitoring mainstream retailers' pricing strategies to preserve their competitive advantage. Walmart CEO Doug McMillon stated his company aims to maintain prices as low as possible for as long as possible.
Erosion of Consumer Confidence
A recent report from Moody's Ratings suggests that tariff-related price hikes, coupled with a weakening job market, have negatively impacted consumer confidence and spending. For example, real personal consumption expenditures increased by approximately 2.2% year-over-year in July, a notable decrease compared to the 3%-plus rates seen in late 2024. August sales in discretionary categories tracked by Retail Dive showed a 5.5% increase, but volumes remained stagnant or declined.
Uneven Spending Patterns
According to Moody’s Ratings analysts, led by Claire Li, consumer spending growth in the U.S. is expected to remain sluggish through 2025, with an uneven recovery across income groups and spending categories anticipated from late 2026. They cite labor market weaknesses and elevated prices as continuing pressures on consumers, although modest real income growth and healthy household balance sheets could mitigate drastic spending reductions. The report also highlights a widening gap in spending habits, with wealthier households maintaining spending on higher-end goods while lower-income households prioritize necessities such as groceries.
Luxury Goods See Price Surge
Research from intelligence platform Competitoor indicates that prices for luxury goods, particularly mid-tier handbags and denim, are on the rise. For the 12 months ending Sept. 5, high-end luxury handbags increased by 9%; mid-tier luxury handbags increased by 14%; women’s sneakers increased by 12%; women’s boots increased by 9%; and women’s denim jackets increased by 34%.
“These price increases reflect new products that have entered the U.S. subject to tariffs,” said Maurizio Catellani, CEO of Competitoor. “Brands said they’d increase prices strategically, on higher-tier items, which is what we’re seeing across the brands we track.”
Holiday Season Concerns
Wells Fargo analysts, led by Edward Kelly, noted growing concerns among retailers serving lower-end consumers. They point out that the impact of tariffs on prices becomes more difficult to avoid as the holiday season approaches. Tariff pricing is expected to ramp up into the fall and holiday season.
