New data reveals that tariffs are significantly driving up prices for back-to-school apparel and accessories, leading to consumer sticker shock and altering purchasing habits.

Tariffs Drive Up Back-to-School Prices, Impacting Retail Sector and Consumer Spending

U.S. consumers are encountering significantly elevated prices for back-to-school apparel and accessories this year, a direct consequence of ongoing tariff policies. This surge in costs is reshaping consumer purchasing habits and placing considerable pressure on the retail sector, leading to an uncertain to bearish market sentiment for consumers and businesses reliant on imported goods.

The Event in Detail: Elevated Costs and Shifting Consumer Behavior

Analysis of recent data underscores the impact of tariffs on consumer goods. According to Klaviyo platform data, online prices for apparel and accessories saw a notable 9% year-over-year surge in July. This increase is considerably higher than official figures from the Bureau of Labor Statistics, suggesting a more pronounced impact on specific retail segments. The rising costs are evident in average order values, which have increased on nearly two-thirds (64%) of apparel sites, while discount rates have simultaneously dropped by four percentage points compared to last year. Consumers are also exhibiting a greater propensity to stick with familiar brands, with repeat buyers now accounting for 60% of orders, a three-percentage-point increase since January, and revenue from this segment climbing by 14%.

Further reinforcing the inflationary trend, research from Harvard Business School indicates that imported goods are costing 5% more and domestically produced goods 3% more than pre-tariff trends. This suggests a broad-based price increase across the supply chain, affecting both foreign and domestic offerings.

In response to these financial pressures, consumer behavior is visibly shifting. A Bankrate survey found that 30% of back-to-school shoppers are altering their habits due to inflation. This sentiment is echoed in a Pew Research poll, where 61% of Americans expressed disapproval of tariff hikes. Data from Bank of America highlights a clear "trading down" trend, particularly within the apparel category. While overall retail spending (excluding restaurants) decreased by 1% year-over-year in July 2024, spending at discount retailers, including value apparel outlets, increased by 2% year-over-year. Household spending on value apparel in July 2024 was up 13% relative to July 2019, significantly outpacing the less than 5% increase in overall apparel spending over the same period. The market share for value apparel has expanded by nearly 12 percentage points since July 2019, with more than half of this gain occurring since July 2022.

Analysis of Market Reaction: Inflationary Pressures and Corporate Strategies

The rising cost of imported goods, driven by tariffs, continues to exert significant inflationary pressure across the economy. Retailers, initially absorbing some of these costs by trimming profit margins, have increasingly begun to pass them on to consumers. Corporate profits have contributed over 40% of the price-level increase since 2019, a figure substantially higher than the historical average of 11-12%.

This environment has compelled consumers to prioritize affordability, with 76% making it a key factor in their purchasing decisions, leading to a 21.7% growth in private-label sales. Companies are responding with diverse strategies:

Walmart, for instance, has demonstrated agility by diversifying its supply chain, shifting 20% of its imports to Mexico. This, coupled with its AI-driven supply chain optimization and "Everyday Low Price" (EDLP) model, has enabled the company to maintain robust gross margins of 24.85% despite facing average tariffs of 18.6%. In contrast, companies like Target, with a greater reliance on discretionary categories, have shown vulnerability, with in-store comparable sales declining 5.7% in Q2 2025 as consumers focus on essential goods.

Another significant example is Lululemon, which experienced a 110-basis-point decline in its gross margin due to tariffs and supply chain reconfiguration. The company has strategically shifted 37% of its production to Vietnam and Cambodia to mitigate risk, reducing its reliance on China. Despite investments of $31 million in an AI-driven supply chain overhaul, selective price increases have not fully offset margin pressures. Lululemon’s stock has plummeted 40% year-to-date, and its shares are trading at a Price-to-Earnings (P/E) ratio of 14, significantly below the sector median of 21, reflecting investor skepticism. The company also lowered its revenue guidance for FY2025 to $10.85–$11.0 billion, from an expected $11.18 billion.

Adding a layer of volatility to the market is the ongoing legal challenge to certain tariffs. The U.S. Supreme Court has agreed to hear an appeal regarding the legality of specific tariffs imposed under the 1977 International Emergency Economic Powers Act (IEEPA). Oral arguments are scheduled for the first week of November. If the Supreme Court rules against the government, it could lead to the refund of tariffs collected from businesses, with TD Bank strategists estimating up to $100 billion in tariffs collected this year could be returned. Treasury Secretary Scott Bessent noted that if the Supreme Court's ruling were delayed until June 2026, an estimated $750 billion to $1 trillion might have already been collected from these tariffs, and any subsequent rollback could cause significant disruption.

Broader Context and Implications: Economic Headwinds and Future Outlook

The sustained impact of tariff policies is projected to have significant long-term effects on the U.S. economy. Real GDP growth is estimated to be 0.51 percentage points lower each over calendar years 2025 and 2026. In the long run, the U.S. economy is expected to be persistently 0.4% smaller, equivalent to an annual loss of $120 billion in 2024 dollars, with exports projected to be 15% lower. The labor market is also anticipated to feel the effects, with the unemployment rate projected to be 0.28 percentage points higher by the end of 2025 and 0.65 percentage points higher by the end of 2026, and payroll employment anticipated to be 480,000 lower by the end of 2025.

While long-run output in the manufacturing sector is projected to expand by 2.7% under the tariffs, these gains are more than offset by contractions in other sectors of the economy, such as construction, which is projected to contract by 3.8%.

Expert Commentary

Experts offer varied perspectives on the current market dynamics and the potential Supreme Court ruling:

"This focus on repeat buyers is a smart move in a market where acquiring new customers is increasingly costly," remarked Jake Cohen, Head of Industry and Insights at Klaviyo, highlighting the strategic shift by brands to cultivate loyalty.

Regarding the Supreme Court's decision on tariffs, Jeff Schulze, head of economic and market strategy at ClearBridge Investments, commented that businesses receiving refunds due to illegal tariffs would experience "a pretty big boost" to their bottom lines, acting "like a form of a stimulus."

Rick Polsinello, a Franklin Templeton strategist, suggested that a ruling against these specific tariffs could be "a positive for companies and the stock market." However, he cautioned that their rollback "could raise new problems for the bond market," noting that the 10-year Treasury yield could remain rangebound at 4% to 4.3% due to uncertainty surrounding tariffs and inflation.

Looking Ahead

The upcoming Supreme Court ruling in early November on the legality of certain tariffs will be a critical determinant for financial markets and corporate strategy. Regardless of the outcome, the structural effects of inflation on retail are expected to persist for years. For investors, strategic opportunities may lie in identifying companies that demonstrate agility in their supply chains, leverage private-label offerings, or specialize in essential goods less sensitive to economic cycles.

Retailers will continue to prioritize diversified sourcing and agile supply chains to navigate the evolving trade landscape. Upcoming economic reports and corporate earnings, particularly from the retail sector, will provide further insights into the long-term implications of these tariff policies.