Retail Industry's Approach to Tariffs through Supply Chain Tactics

Retail Industry's Approach to Tariffs through Supply Chain Tactics

In the face of escalating trade tensions, brands and retailers are adopting new strategies to build resilience and mitigate the risks posed by tariffs. A recent report, "Managing Tariff Turbulence in Supply Chains," identifies eight strategies being used in 2025 to address these challenges.

1. Establishing Tariff War Rooms - Cross-functional teams focused on monitoring and managing tariffs in real time, enabling rapid responses to evolving tariff policies and enforcement.
2. Enhanced Compliance Frameworks - Strengthening documentation, risk-based compliance architectures, and ensuring "reasonable care" standards to navigate the aggressive trade enforcement environment.
3. Cross-Functional Collaboration - Integrating efforts across compliance, procurement, finance, ethics, and HR functions to comprehensively address tariff risks and supply chain complexities.
4. Supply Chain Due Diligence and Transparency - Applying rigorous supply chain due diligence methodologies to identify origins, product classifications, and tariff exposure points.
5. Use of Real-Time Tariff Exposure Tools - Deploying analytics solutions like tariff exposure scorecards and heatmaps that offer real-time visibility and risk scoring of suppliers and products to support strategic sourcing decisions.
6. Operational Restructuring - Considering reshoring, offshoring, or adjusting supply routes while carefully assessing financial and operational impacts such as tax positions, benefit plans, and compliance with debt covenants.
7. Financial Risk Management Adjustments - Reviewing transfer pricing strategies, revenue recognition, and hedge accounting to accommodate tariff-induced volatility and prevent financial statement misstatements.
8. Strategic Supplier Contract Management - Revisiting supplier agreements to mitigate unprofitable contracts due to tariff cost increases and ensuring contractual terms reflect new cost realities.

These strategies collectively aim to address the challenges posed by sudden tariff hikes and aggressive enforcement by combining operational agility, compliance rigor, financial prudence, and technology-enabled insight.

The tariffs have resulted in a surge in sourcing costs, mounting supply chain complexity, and growing uncertainty in pricing and planning for retailers. To manage this volatility, companies are diversifying supplier bases, employing real-time scenario planning, and exploring tariff engineering. Some are moving beyond basic diversification, building out multiple pre-vetted alternatives in each major category and negotiating capacity-sharing agreements that enable production to shift on short notice.

Sourcing teams are identifying new suppliers in lower-tariff regions and adjusting their logistics networks accordingly. Retailers need to be equipped to model different sourcing, pricing, and inventory outcomes quickly, at any point in the planning cycle, using tools that centralize landed cost inputs and support granular, SKU-level modeling based on shifting trade policies.

Some companies are exploring tariff engineering, modifying product design or classification to qualify for lower tariff rates. Businesses are adopting open costing systems that incorporate full cost breakdowns beyond just FOB pricing, factoring in freight, duty, insurance, and compliance costs.

Tariffs may be unpredictable, but with the right strategies in place, retailers can protect profitability and maintain supply continuity. Companies that invest in flexibility, transparency, and cross-functional coordination will be best positioned to thrive in the shifting trade landscape.

However, not all companies have found success with strategies like front loading inventory or passing on costs to consumers. These approaches are insufficient for the structural shift in global trade. These strategies can offer meaningful savings, especially when margins are tight and tariffs are high. For instance, an apparel manufacturer might adjust the fiber composition of a shirt to reduce its applicable tariff.

The report, "Managing Tariff Turbulence in Supply Chains," goes into greater depth on these strategies. The Trump administration has imposed new tariffs on imports from Canada, Mexico, the European Union, China, and nearly all U.S. imports, with rates up to 145% on Chinese goods. In response, companies are revisiting duty drawback programs, which allow companies to reclaim tariffs paid on goods that are eventually exported. Regular auditing and staff training are essential to ensure accurate tariff classification.

1. To address the tariff-induced surge in costs and supply chain complexity, companies are adopting tariff engineering by modifying product designs or classifications to qualify for lower tariff rates.
2. As part of their efforts to mitigate the risks posed by tariffs, brands and retailers are establishing Tariff War Rooms, which consist of cross-functional teams focused on real-time monitoring and management of tariffs.
3. In response to the aggressive enforcement of trade tensions, businesses are enhancing their compliance frameworks, ensuring "reasonable care" standards and strengthening documentation to navigate the challenging trade environment.

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