Impact of US Tariffs on EU Retailers

Written by Vinay Vaswani for Strivo B.V.

It's been a month since the US tariffs were imposed on the EU. The question is what impact is that expected to have on EU Retailers. 

Let's break this down and try to understand piece by piece. 

What tariffs are applicable to EU retailers?

Since August 7th, EU retailers face a 15% baseline tariff on goods entering the US market. Inputs such as steel, aluminium, and copper were hit with a tariff of 50%. Also, EU retailers supplying the US with goods directly from other countries such as Vietnam, India are subject to those tariffs as well. 

Meanwhile, EU retaliatory tariffs remain on hold, creating asymmetric trade pressures where EU goods face immediate cost increases whilst American imports continue flowing relatively unimpeded.

What are the underlying factors determining tariff impact?

Six critical factors determine how severely each retailer gets hit, and the interactions between them make planning particularly challenging.

• US Sales Exposure: 15-20% of several EU Retailers' sales typically come from the US. This is the part directly impacted by tariffs. 

• Non-EU Sourcing to US: Retailers sourcing from Vietnam (46% tariff) or India (50% tariff) for US delivery face higher tariff hits. Supply chains previously optimised for cost efficiency suddenly become margin destroyers.

• US Operations with Imported Inputs: Running US stores or fulfillment centers means those steel fixtures, aluminum displays, and copper wiring now cost 50% more if imported from Europe.

• De Minimis Exposure: The tightening of duty-free thresholds particularly impacts direct-to-consumer and marketplace sellers shipping low-value items.

• Impact on domestic EU sales: With global retailers (esp China) reducing US exposure, they start to focus on EU to make up, increasing competition for EU retailers domestically

• Currency Amplification: EUR/USD volatility is amplifying every tariff impact. A strong euro makes EU exports less competitive just as tariffs make them more expensive.

• Supply Chain Ripple Effects: Even domestic EU operations face cost pressure as global commodity prices adjust to the new tariff reality.

How do tariffs impact EU Retailer's P&L?

The financial impact cascades through every line of the P&L, creating multiple simultaneous pressures.

• Sales face immediate pressure as higher costs force difficult choices between margin compression and price increases that reduce demand. Global retailers pivot away from America toward EU markets, intensifying domestic competition.

• Cost of goods sold increases systematically beyond direct tariff amounts. Supply chain adjustments—establishing new suppliers, building inventory buffers, rerouting logistics—all add expenses that compound the margin squeeze.

• Selling and distribution costs climb through route adjustments, warehousing requirements, and customs delays. Marketing investments to maintain US competitiveness increase precisely when revenue growth slows.

• Other costs proliferate across currency hedging, legal compliance, and operational complexity management, resulting in systematic cost inflation.

• The result is margin compression that threatens the fundamental economics of transatlantic retail operations.

What are EU Retailers saying about this?

Some EU Retailers, especially those with US exposure, have warned about the impact on 2025 earnings. 

Hugo Boss (15% US exposure) expects "low double-digit million euro hits". The 15% tariff on Turkish imports represents their largest burden.

H&M (20% Americas exposure) reports currency and freight cost impacts whilst considering price rises. CEO Daniel Erver notes US consumer sentiment "dropped significantly due to turbulent tariffs." Their China/Bangladesh sourcing creates multiple pressure points.

Adidas (22% N America exposure) faces the harshest reality with "up to €200 million additional costs for 2025." Nearly half their production comes from Asia—27% Vietnam, 19% Indonesia—creating unavoidable compound exposure whilst they "cannot produce most products domestically in the US."

What can we learn from the UK's experience?

The UK's 10% tariffs since April provide crucial intelligence. We already see a 13.5% decline in UK exports to the US in Q2, which is an impact of £2Bn. That on top of the domestic challenges being faced in the UK, puts pressure on retailers. Profit warnings increased 20% y/y for Q2. One in three warnings (34%) cited tariff-related impacts, including weaker demand, supply chain disruption, and exchange-rate volatility. British Retail Consortium mentioned: “For exporters, additional tariffs increase pressure on prices for US consumers. Potential for retaliation adds uncertainty to UK retail supply chains.”

Chinese exporters, disadvantaged in the US, are focusing more aggressively on UK and EU markets, raising competition for UK retailers. Temu & Shein have increased ad spend in the UK and reduced US.

What are the potential response categories from EU Retailers?

Responses will likely combine multiple levers as no single approach fully addresses compound pressures.

• Increased pricing passes costs to US consumers, protecting margins but reducing competitiveness. Only brands with genuine pricing power (esp luxury) can pursue this successfully.

• Absorb tariff impact maintains positioning but stresses margins, demanding exceptional operational efficiency.

• Source from alternate markets reduces compound exposure by shifting away from high-tariff regions. Complex to execute but creates competitive advantages.

• Sell to alternate markets compensates US losses through expansion elsewhere. Requires significant go-to-market investment but offers sustainable growth.

• First Sale rule applications involve applying earlier sale prices to determine duties, reducing effective impact. These regulatory strategies remain under exploration.

• Focus on premium ranges targets less price-sensitive segments where increases may enhance perceived status.

• Off-price strategies help recover money from unsold inventory or fill gaps with discounted domestic inventory.

Other aspects to consider

Multi-layered impacts compound challenges as pressures interact simultaneously. Retaliatory tariffs, when implemented, will impact domestic EU prices. Consumer sentiment shifts against international goods create demand headwinds. Longer-term competitive positioning faces permanent structural changes. Technology infrastructure costs rise from component tariffs affecting digital transformation.

EU retailers must treat these compound challenges with strategic importance equal to supply chain optimisation or digital transformation. Success requires restructuring geographic footprints, supply networks, and pricing strategies faster than competitors whilst maintaining operational excellence under unprecedented pressure.

If you have thoughts on navigating these challenges or would like to explore specific strategies, drop me a line at vinayvaswani@strivo.nl