Moody’s Ratings is the latest firm to warn that tariffs will soon imperil many retailers, especially apparel and footwear brands and stores.
Analysts led by Christina Boni changed their outlook for the industry from “stable” to “negative” following “sweeping tariffs that will hurt profitability for US retail and apparel companies and raise prices for consumers, with a threat of more in mid-2025.”
“Industry prospects for second half of 2025 and early 2026 are bleak following [a] tepid 2024,” they said.
The impact will start to be felt in the second half of the year, after most retailers get through their inventories, and could drag on earnings through the first half of next year, if not longer, the analysts said in a research note Monday. Tariffs will hit some apparel and footwear, big box and department store retailers hardest, and off-price least — though few if any players will be immune.
“Restructuring supply chains poses major challenges with more complex products, including footwear, even more difficult to modify without compromising quality,” Boni said. “Consumer demand was already tepid, with many discretionary categories struggling. Higher costs will eat at profitability, barring significant price increases or vendor concessions.”
Indeed, the tariffs will also help tamp down demand by pushing up pricing after years of inflation, according to Moody’s. Inflation this year could rise between 3.5% and 4% due to tariffs, New York Federal Reserve Bank President John Williams said Friday. Consumers are confronting the potential upheaval from tariffs after years of dealing with inflation and, before that, the pandemic, other analysts have said in recent days.
“Ultimately, tariffs are a tax that suppliers, sellers and consumers pay in some combination,” Boni said. “Affordability remains a critical issue for middle- and lower-income consumers, with shelter and transportation taking up the greatest share of U.S. consumers’ wallets, and as consumer confidence wanes.”
Consumer sentiment has taken a beating this year, and plunged another 11% this month, according to the latest University of Michigan survey, released Friday. Expectations for inflation are at the highest level since 1981, with survey respondents citing worries about the global trade war.
Moody’s could return its “outlook to stable if a clear U.S. trade policy including reduced risk from tariffs as currently proposed, and if consumer confidence and demand improved enough to stabilize the industry’s aggregate EBIT and return to slow growth,” the analysts said, adding that their outlook could reach “positive” if it looked like retail’s EBIT growth would exceed 4%.