Tariffs and Consumer Pullback Risks in U.S. Retail Sectors (2025 Update)
U.S. retailers in 2025 are navigating a fraught landscape of rising import tariffs and wary consumers. Inflation has moderated from 2022 peaks, but remains above target, and interest rates are high – factors that have made shoppers more price-sensitive. Meanwhile, new and existing tariffs – including a 10% blanket duty on most imports and higher rates on key goods – are beginning to filter through to prices . Many businesses built up inventory ahead of the duties and initially refrained from price hikes in fear of choking off demand . As these buffers fade, retailers face a delicate balance: absorb higher costs or risk passing them to consumers already inclined to pull back spending. Below we examine six retail sectors – Apparel, Electronics, Toys & Seasonal, Grocery, Luxury Goods, and Discount/Off-Price – assessing how tariffs and shifting consumer behavior are impacting each, with inflation context and 2024 comparisons where relevant.
Apparel (Clothing & Footwear)
Tariff Impact: U.S. apparel sellers have so far staved off major price spikes despite hefty tariffs on imports (clothing is heavily sourced from Asia). In fact, apparel prices fell 0.4% between April and May 2025 and were down 0.9% year-on-year . This deflation reflects retailers’ strategies: many stockpiled inventory before the new tariffs (10% on all imports plus an extra 30% on Chinese goods) and are eating cost increases to avoid scaring off customers . For example, several fashion brands (from mass retailers like Gap and Urban Outfitters to luxury labels) vowed not to immediately raise prices, even warning of squeezed margins, to keep shoppers buying . Companies fear that open price hikes after years of inflation would trigger a sharp demand pullback .
However, this respite may be temporary. Economists note that “pre-tariff inventory building” has delayed the pain . Price increases are likely later in 2025 as older stock sells through and new imports carry tariff costs . In fact, some hikes are already queued: Nike and others announced summer price rises on various apparel/footwear products . Retail analysts see particular risk of apparel prices “bouncing back” up in coming months – especially in tariff-sensitive segments like footwear – which could test consumers’ tolerance.
Consumer Pullback Risk: There are signs that Americans have been paring back clothing purchases in 2025. Government data showed spending on clothing and footwear softened in early Q2 as households cut discretionary outlays amid economic uncertainty . According to a Consumer Edge analysis of millions of card transactions, U.S. apparel, accessories and footwear spending fell 2% year-on-year in Jan–Feb 2025 . This decline outpaced overall consumer spend and continued a downward trend from 2024. Shoppers have become more value-focused: budget retailers and resale channels saw gains, while pricier apparel sales lagged. Fast-fashion and thrift shopping were up 5% in early 2025, even as overall apparel spend fell . Sportswear sales dropped 6%, indicating even typically strong categories weren’t immune .
Retailers are responding with promotions. Many clothing chains ramped up discounting through April–May to entice reluctant shoppers and clear inventories . This helped lift unit sales – indeed, sales at clothing stores ticked up 0.8% in May as heavy promotions coincided with warmer weather . But those gains are fragile. Industry experts warn that late 2025 seasons (back-to-school, holidays) pose a balancing act: raise prices too much and kill demand; cut orders too far and risk empty shelves . The apparel sector is effectively stuck “between a rock and a hard place” – contending with rising import costs on one side and price-sensitive consumers on the other . Should inflation rekindle (as tariffs feed through) or the economy slow further, apparel retailers may see more pronounced consumer pullback after this period of price stability.
Electronics (Consumer Electronics & Appliances)
Tariff Impact: The electronics sector – from gadgets to big appliances – is highly exposed to tariffs and already feeling cost pressures. A Reuters analysis found that prices for China-made consumer goods on Amazon rose about 2.6% between January and mid-June 2025, more than double the core goods inflation rate . The fastest-rising items were often electronics or related products (e.g. printers, shredders, blank media) and home goods . This acceleration starting in May is a clear signal that tariffs are “starting to hit American consumers” in this category . Tariffs on components (like the 50% duty on certain metals) also drove up product costs – for instance, major appliance prices jumped 4.3% in May, the biggest monthly rise in nearly 5 years, reflecting steel/aluminum duties .
Retailers have tried to blunt the impact. Best Buy, the nation’s largest electronics chain, said it adjusted prices and promotions to stay competitive despite higher import costs (30–35% of its merchandise by value comes from China) . Even so, higher tariffs on items like appliances, TVs and consoles are forcing tough choices. In late May, Best Buy slashed its annual sales and profit forecast, explicitly citing worries that U.S. tariffs will dampen consumer demand for big-ticket electronics as prices surge . The outlook, one analyst noted, “signals a retailer squeezed at both ends: price-sensitive consumers on one side and rising import costs on the other” . Executives warned that tariffs could drive up tags on everything from gaming consoles to home theater systems, and said they’re bracing for shoppers to potentially delay upgrades . The company assumes current tariff levels persist and is hoping consumer behavior “does not materially change” from recent patterns – a cautious stance given the uncertainties.
Consumer Pullback Risk: So far, U.S. consumers have been resilient but very “thoughtful” about big-ticket electronics purchases, per Best Buy’s CEO . High inflation in 2022–24 and now expensive credit have made shoppers more cautious on non-essentials. Retail sales at electronics and appliance stores fell 0.6% in May from the prior month , even as overall retail sales edged up excluding autos. This dip suggests some tightening of wallets for durable goods. Indeed, households front-loaded some electronics buying earlier in the year – there was a spring surge in spending on goods like appliances as consumers (and businesses) rushed to beat tariff hikes, similar to what happened with autos . As that rush subsided, sales softened.
Industry data also show particular subcategories weakening. For example, appliance unit volumes have dropped; Best Buy reported appliance revenue fell by roughly 15% year-on-year in early 2025 , likely a combination of softer demand and consumers balking at price increases. Similarly, personal electronics (phones, laptops, etc.) are cycling past their pandemic-era boom, and demand is normalizing downward. Some relief is that technological improvements often keep electronics prices competitive – e.g. smartphone and computer price indexes have trended flat to down in recent years . Indeed, inflation data show smartphone prices are lower now than when tariffs began in 2018 , implying manufacturers either absorbed tariffs or found cost savings. This has helped prevent sticker shock so far. But with new tariffs and fewer supply chain workarounds left, even tech products could see price upticks later this year.
The risk is that consumers, already extending replacement cycles for phones and TVs, will further postpone purchases if prices jump or economic jitters grow. Big-ticket electronics are highly discretionary and often finance-dependent, so higher interest rates plus tariff-driven price hikes create a double deterrent. Retailers are counting on continued “pull-forward” of demand – e.g. holiday buyers shopping early if more tariffs loom – but also acknowledge a slowdown is likely in the second half of 2025 . In summary, the electronics sector is on watch for a potential slump as cost pressures meet cautious consumer sentiment.
Toys & Seasonal Merchandise
Tariff Impact: Toys and seasonal goods (holiday décor, seasonal apparel, etc.) are another mostly imported category starting to see price effects from tariffs. Thus far, inflation in this segment has been modest, but with telling exceptions. In June, U.S. toy prices were reported up sharply – the toy price index jumped ~1.3% in May alone, the largest increase since early 2023 . A Bloomberg analysis noted toy costs saw their biggest rise in years as tariffs took hold . Similarly, hobby and sporting goods (often lumped with toys) saw price upticks. This suggests retailers that had long held off are beginning to pass on higher import costs. In fact, tariff-exposed categories like toys were singled out by the Fed as areas where prices “rose by the most” recently , even while overall inflation stayed tame through spring.
Major retailers are warning consumers to expect increases. Walmart – the country’s largest toy seller – indicated that higher tariffs would eventually force price hikes on items “from toys to groceries to sneakers,” despite its efforts to negotiate costs . The Trump administration did temporarily pause some punitive tariffs pending trade negotiations , which gave importers of toys/seasonals a bit of breathing room. Many firms also stocked up inventory ahead of tariff deadlines (e.g. bringing in holiday merchandise early) . Those tactics initially limited price pain for consumers. But economists widely expect tariff-driven costs to surge in the summer and fall, especially as retailers prepare for back-to-school and the 2025 holiday season . Notably, school and office supplies have seen prices rise faster than average as of mid-year – a sign that tariffs on Chinese-made goods are creeping into seasonal back-to-school aisles as well.
Consumer Pullback Risk: U.S. consumers’ demand for toys and seasonal items has been resilient but could weaken if prices climb too much. During the 2024 holiday season, shoppers benefited from heavy discounting (to clear excess inventory) and early deals. But if 2025 brings a scenario of higher toy prices and fewer promotions, families may cut back on gift-giving or trade down to cheaper brands. Already, front-loaded buying behavior was observed: many Americans splurged in March and April on goods – partially including toys and seasonal home items – to beat impending tariffs . That pulled demand forward, leaving a potential void later. In fact, overall retail sales spiked in March 2025 due to “tariff-driven” buying, then fell in April–May as the surge unwound . For toy sellers, this means some birthday or early holiday purchases may have happened months earlier than usual, raising the risk of a slower late-year season.
For now, spending on toys/games hasn’t collapsed: sales at hobby, sporting goods and book stores rose 1.3% in May as consumers continued leisure spending in some areas . Seasonal categories like gardening also saw strength in the spring. But those gains could be short-lived. Consumer surveys show rising concern about discretionary spending. Nearly half of U.S. shoppers say they’re worried about tariff-related price increases on items like apparel and toys and plan to curb non-essential purchases if inflation flares up again . Furthermore, toys are a classic “want” (for kids) rather than a “need,” making them sensitive to both prices and confidence. Should economic uncertainty mount into late 2025, parents might trim holiday toy budgets or rely more on sales. Retailers like Macy’s have already said they are “selectively” raising prices to offset tariffs – a strategy to avoid across-the-board hikes that scare off shoppers. Still, selective increases on certain toys or seasonal goods could push consumers to skip those items.
On the flip side, one mitigating factor is that seasonal demand can be time-sensitive – e.g. families will still buy costumes at Halloween or gifts in December, even if in smaller quantities or lower price-points. If tariffs add only a few dollars to a toy’s cost, some may absorb it. But if combined with broader inflation, the risk is a broader consumer pullback in Q4. In sum, the toys & seasonal segment is entering the second half of 2025 with caution: costs are rising and any misstep (like significant price hikes without compelling promotions) could dampen consumers’ festive spending spirit.
Grocery (Food Retail)
Tariff Impact: Groceries are largely domestically produced, but global trade factors – from agricultural imports to input costs – still matter. Direct food tariffs (for example, on imported cheese, wine, or produce) have been limited in 2025, but indirect tariff effects are creeping in. Metal tariffs on steel have made packaging (cans, foil) pricier, potentially impacting canned goods. Equipment and transport costs have also risen. Broadly, though, through mid-2025 food inflation actually cooled thanks to easing supply shocks. In April, U.S. grocery prices fell 0.4% – the largest drop since 2020 – led by a 12.7% plunge in egg prices as egg supplies recovered . This pulled overall food-at-home costs down slightly, helping bring annual inflation to its lowest in four years by spring . Shoppers finally saw relief on some staples that had soared in 2024 (eggs were still up ~49% year-on-year in early 2025 despite the drop) .
By May, however, food prices were creeping up again: grocery CPI rose ~0.3%, driven by strong increases in cereals and bakery products . Fruits and vegetables also turned higher after a brief dip . Economists noted “few signs of tariffs impact” in food as of spring, but expected mid-year upward pressure . One reason: the U.S. and China reached a tentative trade truce, yet kept a 10% blanket tariff in place on almost all imports, including some food products and farm inputs . Additionally, China-specific tariffs on certain goods were merely delayed to July . So the tariff squeeze on food – perhaps via higher costs for farm equipment, fertilizer, or imported ingredients – is slated to hit later in 2025 . Industry groups warn that tariffs on tinplate steel (for cans) or on specialty imports could filter through to grocery shelves, raising prices for pantry staples and seasonal foods. Even Walmart highlighted that tariffs could drive “prices surging on everything from toys to groceries” if fully passed on .
Consumer Pullback Risk: Food is the most essential category, so consumers don’t “stop” buying groceries – but they do adjust how and where they spend. Throughout 2024, grocery inflation far outpaced wage growth, straining household budgets. In 2025, with food prices stabilizing somewhat, consumers are cautiously optimistic but still seeking value aggressively. Shoppers have been trading down to store brands, buying in bulk, and visiting discounters for groceries. Traditional supermarkets are feeling this pressure. Notably, Kroger (parent of multiple grocery chains) announced plans to close 60 stores over 2025–26 after a failed merger, citing an intensely competitive market and margin challenges . Industry analysts described conventional grocers as “enduring one hit after another” in an environment of labor cost hikes, price-sensitive customers, and big-box competition . In short, if consumers can save a dollar on food, they will – whether by switching stores or cutting non-essentials from their grocery list.
Recent spending data reflects this frugality. Food-at-home sales volumes have been flat to down even as dollar sales rise slightly, indicating consumers are buying fewer items or smaller sizes due to higher prices. At the same time, dining out has cooled: restaurant and bar sales fell 0.9% in May , a sign that households may be cooking at home more to save money. This could boost grocery demand in volume, but only if prices remain reasonable. High interest rates and an uncertain economy mean many consumers have “reached the limits of their spending power,” according to the National Retail Federation, which forecasts slower growth in 2025 retail sales (~3%) in part because essentials have absorbed so much of family budgets . If tariffs or other factors push grocery prices up sharply again, consumers might compensate by slashing discretionary spending elsewhere (impacting apparel, dining, etc.), which in turn could hurt overall retail health.
So far in 2025, the interplay of inflation and behavior in groceries has been paradoxical: lower-income shoppers are stretching every dollar, while some higher-income consumers feel less pinched and continue premium purchases. That said, confidence surveys show inflation fears still loom large. The University of Michigan consumer sentiment index in April hit its lowest since 2022, with many respondents citing food and fuel prices as ongoing concerns . Retailers have noticed a growing divide – some consumers buy store-brand soup to save money, then splurge on a nicer cut of meat when it’s on sale. The net effect is a hunt for value. Grocery chains that offer lower prices (Walmart, Aldi, dollar stores) or perceived value (Costco) have gained share, whereas those that can’t compete on price or experience struggle. If tariffs on food inputs begin to bite later this year, grocers may try to shield shoppers for as long as possible (as they did with eggs, eating some cost increases) to avoid losing traffic. But ultimately any significant cost increase will test consumer loyalty in this zero-sum wallet environment. In summary, grocery retailers walk a tightrope: inflation relief has been a welcome breather, but tariff aftershocks could force unpleasant price moves that risk further consumer pullback or shifts to cheaper outlets.
Luxury Goods
Tariff Impact: Luxury products (high-end fashion, leather goods, jewelry, etc.) often carry healthy margins and have global supply chains. While tariffs haven’t been the top issue for luxury – currency swings and local demand have larger effects – the trade climate still hovers in the background. Many European luxury brands import goods to the U.S., and tariffs on European luxury (like the ones threatened during past trade disputes) have been avoided so far in 2025. However, luxury firms do face higher costs on materials (e.g. exotic leathers, metals) which could be tariff-affected, and on any China-made components. The more salient factor is that luxury brands dramatically raised prices in 2021–2023, far above inflation, to boost profits . By early 2025, those price increases “reached a ceiling,” and any further hikes risk cratering demand from aspirational customers . In other words, the luxury sector entered 2025 with prices already very high – so any additional inflation or tariff-related uptick is especially unwelcome, as it could quickly price out the marginal buyer. Indeed, some evidence suggests this is happening: certain top luxury houses saw U.S. sales decline in 2024 and into 2025, partly because customers protested relentless price hikes . For example, Consumer Edge data showed spending at ultra-high-end brands like Chanel and Dior dropped for the second year in a row, which analysts attributed to pushback on steep price increases and limited new product excitement .
Overall, tariffs are not yet a headline item in luxury earnings reports – no one is blaming a handbag sales drop on import duties. But there is a second-order tariff effect: China’s economy (a huge luxury driver) has been slowed by trade tensions and tariffs, indirectly softening luxury demand globally . Also, should the U.S. impose any new duties on European luxury goods (for instance, in retaliation to digital services taxes or other disputes), it would directly raise U.S. prices. Luxury makers would face a tough choice: absorb the tariff (sacrificing margin) or pass it on and risk further demand pullback. Given that many brands already pushed U.S. prices as high as 40% above pre-pandemic levels, most do not have room to further raise tags without hurting sales. In fact, some luxury labels quietly began offering more discounts or perks in 2025 – an unusual step for an industry that prefers pricing power – in order to move inventory . This underscores how sensitive the market has become to price and value perceptions.
Consumer Pullback Risk: After a boom through 2021, the U.S. luxury market has cooled considerably. In the first months of 2025, luxury goods spending fell about 7% year-over-year, continuing a similar decline seen in 2024 . This pullback is particularly pronounced among aspirational luxury shoppers – those upper-middle-class consumers who treated themselves to Louis Vuitton or Gucci in better times. As economic uncertainty rises, they’re reining in such purchases. Data shows multi-brand luxury retailers’ sales plunged 22% early this year, and single-brand luxury store sales fell 6%, despite strength at a few accessible luxury names like Coach . High-income clientele are still spending, but even they are getting choosier. For instance, affluent American shoppers consolidated their luxury spend toward brands perceived as timeless or offering better value – Louis Vuitton and Cartier gained share among wealthy buyers, while Gucci notably lost share in early 2025 . This suggests a more cautious consumer who is less inclined to impulse-buy or tolerate endless price jumps.
Inflation also plays a role: luxury goods prices increased so much in recent years that they outpaced even high-earners’ income growth. With macroeconomic headwinds and market volatility, the wealth effect that buoyed luxury is diminishing. Wealthier consumers are shifting some of their discretionary budget to experiences (travel, fine dining, wellness) rather than goods , a trend that puts further pressure on luxury product sales. Additionally, the rise of resale has given price-sensitive luxury shoppers an alternative – the secondhand luxury market grew strongly in 2024 and is projected to continue expanding . If a $5,000 handbag now costs $7,000 new because of last year’s hikes, more consumers will look for a like-new one on resale platforms or simply forego it.
Luxury executives acknowledge that demand from aspirational buyers is very price-elastic right now. As McKinsey observed, “higher prices are negatively affecting demand from aspirational luxury consumers” . The truly rich will always buy some luxury, but that broader base of occasional luxury customers is pulling back – a dangerous development for growth. Department stores, often a channel for entry-level luxury and cosmetics, saw only a 2% spending uptick early in 2025 , likely driven by promotions. If economic conditions worsen or tariffs/inflation push prices even higher, the risk is a further slump in luxury goods demand in the U.S. Already, 2025 is expected to be essentially flat or even negative for luxury revenue growth, a stark change from the boom years . The silver lining is that luxury brands have significant pricing power cushions (high margins) and could roll back some increases or offer subtle discounts to prop up volume without openly “on sale” branding. Many are indeed adding value in other ways – exclusive experiences, loyalty perks – to justify prices and entice spending even as consumers hesitate. But the sector’s current predicament can be summed up simply: luxury has tested the limits of price tolerance, and now the only path to growth is through restoring value in the eyes of customers. Until then, the luxury segment will remain at risk of consumer pullback, especially if any new shock (tariffs, recession, etc.) hits affluence or confidence.
Discount and Off-Price Retail
Tariffs Impact: Discount and off-price retailers (e.g. Dollar General, TJ Maxx, Ross Stores) generally thrive on offering lower prices, often via cheaper sourcing or excess inventory buys. Paradoxically, tariffs can sometimes benefit off-price chains: when mainstream retailers cancel orders or end up with overstock due to higher costs, off-price buyers can scoop up that inventory at a discount. However, off-price and discount stores are not immune to tariffs – many of their goods are imports too, and upstream cost increases can trickle down. For example, if tariffs raise the cost of apparel across the board, even off-price retailers eventually pay more for merchandise (though often delayed, since they buy later in the product cycle). So far in 2025, off-price retailers have indicated they can still procure goods at attractive prices, partly because traditional retailers ordered cautiously and there’s plenty of stock in the system. But they are watching tariff developments closely. A universal 10% import tariff effectively taxes even the closeout merchandise they specialize in. That said, off-price chains have more flexibility to mitigate tariffs – they can diversify sourcing, buy when sellers are desperate, and their customers expect an ever-changing mix of goods.
Consumer Behavior: The current consumer climate is playing to discounters’ strengths. With inflation squeezing budgets, more Americans are “trading down” to lower-priced stores and hunting for bargains. Foot traffic data shows a steady increase in visits to off-price retailers and thrift stores in 2025, coming at the expense of traditional full-price apparel stores . Shoppers are flocking to places like T.J. Maxx, Burlington, and thrift shops not only for the lower prices but also for the “treasure hunt” experience – the thrill of finding a deal or unique item each trip . According to Placer.ai analytics, consumers enjoy that off-price retailers get new assortments every week, making frequent visits rewarding . This trend cuts across income levels: even high-end shoppers are mixing luxury with thrift. In fact, the overlap of customers who shop both luxury department stores and Goodwill or off-price outlets has grown significantly post-pandemic . Many consumers have become comfortable shopping “high-low,” choosing premium quality for some purchases while seeking bargains for others . This means the stigma once attached to discount retail is gone – it’s almost fashionable to brag about a bargain find.
Retail sales figures corroborate the momentum in value channels. While overall retail growth is modest, the general merchandise category (which includes big discount chains) has been a leader in early 2025 spending growth . Dollar stores and warehouse clubs also report that customers are shopping more intentionally, but not necessarily less overall – they are just choosing retailers known for low prices. For example, Walmart’s U.S. sales rose in Q1 2025, boosted by grocery shoppers trading down from higher-priced supermarkets . However, there’s a caveat: by mid-2025, some dollar store chains warned that their core low-income customers are under severe financial stress (high food, rent, gas costs), which could limit even discount sector growth. Indeed, if the economy worsens, there is a point where even off-price sees pullback – when necessary spending uses up budgets entirely.
For now, though, discount and off-price retail is one of the few bright spots. The National Retail Federation expects consumers to keep seeking value throughout 2025, which should sustain discount sector sales even as higher-end retail softens . Off-price apparel retailers are additionally benefiting from inventory gluts at brands – they have plenty of goods to choose from, often buying at 20–60% below normal wholesale cost, which lets them maintain low prices despite tariffs. These retailers also typically have lower exposure to e-commerce competition (their treasure-hunt model drives in-person visits) and lower operating costs, meaning they can be more patient in raising prices.
In summary, tariffs so far haven’t dented the discount sector’s appeal – if anything, they accentuate it: as tariffs put upward pressure on mainstream retail prices, the relative bargain of off-price looks even better. Consumers worried about inflation are drawn to any promise of savings . The key risk would be a scenario where tariffs become so punitive that even off-price stores must significantly mark up products, or a recession that leaves even discounted shopping out of reach for many. Barring that, the “value for money” mindset is dominant, and retailers who can deliver low prices (or the perception thereof) are poised to continue winning share in 2025. The resilience of this sector underscores a broader theme of the year: Americans aren’t necessarily buying less, but they are buying smarter, gravitating to retailers and formats that stretch their dollars in an uncertain time.
Sources
- Lucia Mutikani, Reuters – “US consumer prices rise moderately; tariffs expected to fan inflation” (June 11, 2025)
- Augusta Saraiva, Bloomberg via LA Times – “U.S. clothes, toy costs show tariff hit only at margins so far” (June 11, 2025)
- Joan Kennedy, Business of Fashion – “Surprise! Why Apparel Prices Are Actually Falling” (June 12, 2025)
- Laurel Deppen, Fashion Dive – “Apparel, luxury spending fell in the beginning of 2025: report” (Mar 25, 2025)
- Savyata Mishra, Reuters – “Electronics retailer Best Buy cuts annual forecasts on tariff uncertainty” (May 29, 2025)
- Siddharth Cavale, Reuters – “US prices for China-made goods on Amazon rise faster than inflation… as tariffs bite” (July 1, 2025)
- Lucia Mutikani, Reuters – “Weak US retail sales, manufacturing output point to softening economy” (June 17, 2025)
- Lucia Mutikani, Reuters – “US consumer spending falls; tariff-related boost to inflation awaited” (June 27, 2025)
- Caroline Petrow-Cohen, LA Times – “Why Kroger is closing 60 stores: ‘One hit after another’” (July 4, 2025)
- Joan Verdon, US Chamber of Commerce (CO–) – “5 Consumer Trends Shaping Spending Patterns in 2025” (May 2025)
- McKinsey & Co. and BoF – State of Luxury 2025 (Jan 13, 2025)