Tariffs are making waves throughout the market, with executives at luxury goods brands and mass-market retailers, alike, addressing the impact that the Trump Administration’s trade policy is having on their operations. LVMH chairman and CEO Bernard Arnault said in connection with the group’s Q1 results this month that the year “started well but worsened from March due to economic turmoil linked to tariffs.” Hermès recently revealed that it will raise prices in the U.S. in order to offset the impact of a 10% import duty on European goods, and rival Kering’s chief financial officer Armelle Poulou said that the group as “the capacity to protect our margins via price increases.”
Looking beyond just luxury, tariffs have “a ripple effect across supply chains, cost structures, and ultimately, pricing strategies,” AlixPartners stated in a recent note. “While many companies instinctively seek to pass through increased costs to consumers, this tactic is increasingly fraught in today’s economic climate.” The financial advisory and global consulting firm asserts that in categories where lower cost, imported goods dominate, “tariffs can drive up baseline costs, not only for individual companies, but for entire industries, making it more expensive to produce and sell the same products.”
At the same time, macroeconomic factors, such as elevated inflation, fluctuating interest rates, and declining consumer confidence, are pressuring household budgets. AlixPartners’ analysts suggest that discretionary spending – on categories like travel, gifting, shopping, and savings – could fall by 15–25% during downturns.
“Consumers are not just cutting back; they are reprioritizing.”
> Impact on Fashion & Beauty: The clothing and footwear sector is expected to face the brunt of new trade tariffs, with U.S.-imposed duties on Chinese-made goods soaring to 145%. Since China is the leading supplier of apparel to the U.S., brands that rely heavily on Chinese manufacturing and count the U.S. as a major market are expected to suffer significant impacts. Other key manufacturing hubs like Vietnam, Bangladesh, India, and Turkey are also feeling the strain, with tariffs of 46%, 37%, 27%, and 10%, respectively. If these tariff levels persist, brands will face soaring production costs, forcing price hikes and severely squeezing profit margins.
Many brands are now scrambling to reassess their strategies and financial forecasts in light of the fact that companies “have invested in expanding their sales in the U.S. given the strength of the U.S. economy and challenges in other markets including Asia, according to Browne Jacobson LLP’s Caroline Green and Emma Roake. However, “all fashion brands will be impacted by the uncertainty and consequent damage to consumer confidence which comes on the back of several years of shocks and uncertainty.”
While many beauty brands that manufacture their products in Korea, France, and Italy will benefit from the 90-day pause in tariffs, Green and Roake note, “there is still significant uncertainty as to whether a better deal can be negotiated by those countries (or the EU as a bloc) in that timescale. The uncertainty will therefore also hit beauty brands, as budgets are cut and brands look to share costs with suppliers and retailers.”
Key (Legal) Risks of Raising Prices
In an effort to offset the impact of the latest round of tariffs, many companies are considering the addition of a “tariff fee” – a set dollar amount or percentage added at checkout, accompanied by an explanation for the additional charge. “At first blush, this may seem a good solution: if implemented, it can seemingly allow retailers to avoid raising prices and preserve goodwill with customers while also cushioning the impact of a spike in costs on the bottom line,” according to Benesch’s Stephanie Sheridan, Meegan Brooks, Nathalie Gorman, and Hannah Laubach.
However, they caution that this strategy – which may make use of “drip pricing,” which sees companies advertise a price that does not include all “mandatory fees or charges,” and “junk fees,” which consists of mandatory fees or charges that are added later in the checkout flow – “carries significant risks of state enforcement and consumer class actions and potentially violates the laws of several states.”
> In addition to unfair and deceptive acts laws in place in all 50 states, three state laws specifically address “junk fees” and “drip pricing”: California (SB 478), Massachusetts (940 CMR 38.00), and Minnesota (HB 3438).
At a high level, Frankfurt Kurnit Klein & Selz PC’s Hannah Taylor states that these laws (and similar pending legislation in other states):
– Prohibit advertising or displaying a price for a product or service unless it reflects the total amount a consumer is required to pay, excluding only government-imposed taxes and, in some cases, shipping – provided those costs are disclosed prior to checkout. In other words, advertising one price and then adding a mandatory surcharge or additional fee at checkout is likely a violation of the law;
– Require businesses to clearly and accurately describe the nature and purpose of any fees. For example, labeling a charge as a “service fee” when it is actually a general revenue or profit driver may be considered deceptive; and
– May impose prominence or formatting requirements for price information (and require an all-in price to be displayed more prominently than other price information).
Given the rapid proliferation of such laws, and the fact that most businesses with an online presence have customers nationwide, Benesch’s attorneys assert that “the safest approach to tariff fees is to avoid them.”
In the event that retailers opt to implement tariff fees for customers in states other than California, Minnesota, and Massachusetts, Sheridan, Brooks, Gorman, and Laubach state that they should “confirm their customers’ locations where possible, in order to avoid accidentally imposing prohibited fees” and then make the surcharge “as clear and conspicuous as possible, as early in the shopping process as possible.”
> “Even in California, however, it may be hard for a plaintiff to satisfy the California Consumers Legal Remedies Act’s damage requirement where a fee was clearly and conspicuously disclosed from the start, such that any reasonable consumer would understand it applied.”
Wholesale Terms, Price Matching Clauses and Disputes
Looking beyond the risks associated with implementing “tariff fees,” companies are encouraged to review their supply, distribution, and manufacturing agreements and their arrangements with retailers with a focus on several critical issues, including (but not limited to) …
– Wholesale contracts: Many wholesale contracts fix prices or at the very least, the way in which prices are calculated, per Green and Roake. “In older contracts, tariffs are unlikely to be addressed directly.” As such, companies “should check their price increase and force majeure clauses to understand if they have scope to pass on the tariffs.”
– Price matching clauses: “If the market is flooded with cheap overseas goods, price matching clauses could be disadvantageous. Companies should check whether their clauses allow comparison with DTC online platforms. Pure play brands may find it harder to address than those with a bricks-and-mortar offering.”
– Disputes: Companies should expect “an increase in disputes with suppliers, distributors, agents and retailers as each party in the supply chain scrambles to reduce their exposure to the increased costs by cancelling orders, reneging on minimum purchase requirements and putting pressure on partners to share the losses.”
THE BOTTOM LINE: In the face of mounting tariff pressures, brands across the fashion and beauty sectors must move swiftly and strategically to protect their margins, reputations, and consumer trust. Beyond price adjustments, companies should focus on transparent communication, careful legal compliance, and long-term supply chain resilience. As trade dynamics continue to evolve, businesses that proactively adapt – balancing financial prudence, brand integrity, and legal boundaries – will be best positioned to weather the uncertainty and even potentially emerge stronger in the post-tariff marketplace.
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