US retailers battle tariff turbulence
Amid rising costs and disrupted supply chains, companies focus on supplier relationships and localizing operations to sustain growth
Changing US tariff policies are triggering financial and operational challenges for the retail industry. Sweeping US tariffs introduced by the Trump administration and now going into effect1 are likely to disrupt global supply chains, increase costs, and complicate logistics and production planning for retailers.
KPMG LLP surveyed C-suite executives in May 2025 to shed light on the effects of the proposed tariffs and how companies across industries, including retail, are navigating this turbulent tariff environment.2
Tariffs’ impact on financial health
To offset these pressures, finance and treasury teams at retailers are running SKU-level landed-cost models to gain true margin visibility, analyze performance drivers in detail, and improve profit and loss and cash flow. They also are conducting price-volume elasticity scenarios and manage working capital timing related to tariffs. But these efforts have yet to fully counter the financial strain caused by tariffs.
Half of retail respondents reported a decline in gross margins of 1 percent to 5 percent due to tariffs—the highest result across all sectors. Among the items hardest hit by current or potential tariffs, 28 percent of sector respondents cited imported finished goods—over double the rate of other sectors (12 percent). Another 26 percent pointed to raw materials (e.g., metals, minerals), consistent with the overall survey results.
Alongside margin pressures, retail sales are dwindling. A notable 57 percent of retail respondents reported a downturn in sales, significantly higher than the all-sector average of 45 percent. The impact is especially visible in foreign sales: 37 percent of respondents reported a drop of 16 percent to 25 percent, highlighting the global reach of US trade policy.
Uncertainty in planning and investment
Retailers generally lack confidence in tariff stability, which complicates investment and planning. More than one quarter (27 percent) of retail respondents expressed doubt, while 20 percent said they were very insecure about tariff predictability.
Half of retail respondents reported delaying or scaling back investments, in line with the overall survey average of 47 percent. Additionally, 37 percent have postponed major new capital investments by 7 to 12 months due to tariff uncertainty. These postponements are particularly affecting logistics infrastructure (54 percent) and investments in technology, research and development, and product innovation (51 percent).
Strategic risk mitigation
To counter tariff challenges, retailers are focusing on risk management and strategic adaptation. Tariffs have become a first-order variable for merchants, affecting shelf prices, vendor terms, sourcing geographies, and inventory cash flow.
The survey found that 43 percent of respondents lack visibility into tariff-related expenses in financial dashboards, underscoring the need for refined third-party data. In line with overall results, 40 percent are improving data collection (e.g., country of origin) to better manage tariff changes.
Supplier relationships also pose hurdles: half of respondents said inflexible arrangements limit their ability to respond to new tariffs. In response, many are renegotiating cost-sharing arrangements—such as terms, open-book reviews, vendor-managed inventory (VMI), and distribution center bypasses—instead of relying on blanket price hikes.
More than 60 percent of retail respondents said their company has passed up to 50 percent of tariff costs to customers, while 27 percent—higher than most sectors—reported passing along 51 percent to 100 percent.
Sam Ganga
U.S. Consulting Leader, Consumer & Retail, KPMG LLP
Customer demand sensitivity remains a major concern, with 43 percent of respondents worried about pricing’s impact on demand. Still, 27 percent said their companies have raised prices to protect margins—above the overall average of 18 percent.
Some major retailers are selectively passing tariff costs on to consumers. More than 60 percent of retail respondents said their company has passed up to 50 percent of tariff costs to customers, while 27 percent—higher than most sectors—reported passing along 51 percent to 100 percent. To remain competitive, many have kept prices low on consumables but increased them on general merchandise to preserve competitiveness and margins.
Retail leaders are carefully calibrating price increases and promotions based on elasticity and competition. Hikes often start with new SKUs before core lines. Promotions are used where customer traffic is sensitive. Leaders also manage product mix by emphasizing lower-duty substitutes or different pack sizes to hit key price points, reserving sharper hikes for less price-sensitive items.
Supply chain reconfiguration and localization
Across supply chain functions, companies are incorporating tariff scenarios into integrated business planning (IBP), adjusting safety stock policies to account for duty and lead-time risks, and making network shifts such as nearshoring and bypassing distribution centers for tariff-heavy SKUs. These tactical moves support broader tariff strategies.
While most industries cite operational efficiency as their top response to tariff pressure (55 percent), retail companies emphasize supply chain reconfiguration (63 percent) and pricing adjustments (60 percent).
According to the survey, 70 percent of retail respondents are actively reconfiguring their supply chains in response to shifting export demand due to tariff changes—a more proactive stance than other sectors (55 percent overall).
Inventory “front-loading” before tariff deadlines has created whiplash.3 Some brands accelerated imports to avoid duties, only to face bloated inventories, heavier promotions, and margin pressure.
Among retailers, 48 percent said reshoring operations to the US is feasible or highly feasible; 60 percent estimated such a shift would take one to two years, similar to the overall average of 57 percent. . The top barrier: labor cost, cited by 67 percent.
If tariffs persist, retailers may adjust assortments and sourcing strategies—expanding private-label offerings, shortening lead times, and increasing shelf space for tariff-exempt or near-shored goods.
Retailers are also weighing pre-buying costs against markdown risks. Many saw post-tariff inventory gluts erase duty savings. To avoid delays and surprise fees on cross-border parcels, they're preparing for changes to de minimis thresholds.
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As retail organizations respond to US tariffs, they are enhancing operational agility and strengthening supply chains—showing resilience through strategic transformation. These efforts help the sector better navigate future disruptions and support more consistent growth amid evolving trade policies.
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With special thanks to: Sam Rajakumar