The global retail and apparel industry is bracing for a sharp EBIT decline in 2025, as tariffs, inflation, and changing consumer habits collide. But behind the numbers lies a bigger story…
The global retail and apparel sector is staring down a profit crunch. According to Moody’s Investors Service, the industry’s earnings before interest and taxes (EBIT) are projected to decline by more than 10% in 2025 for offline sales, and over 5% even when including online revenue.
This negative outlook—down from a previously stable one—comes amid intensifying economic pressures, shifts in consumer behaviour, and escalating geopolitical risks.
“We changed our outlook to negative from stable after the U.S. imposed sweeping tariffs that will hurt profitability for U.S. retail and apparel companies and raise prices for consumers,” said Moody’s in a recent sector update. “Tariffs will be a material drag on earnings through at least the first half of 2026.”
This anticipated EBIT decline isn’t just a U.S. phenomenon. While European retailers are expected to fare slightly better, their EBIT growth is forecast to slow to low-single digits in 2025, down from a 6% rise last year. The factors behind the profit squeeze are multifaceted and deeply interlinked.
At the heart of the crisis are broad-based tariff increases, especially by the U.S., which threaten to upend pricing strategies and supply chains. These tariffs are not only increasing costs for retailers but are also feeding into already elevated consumer prices.
A First Insight survey, cited by eMarketer, found that 31% of consumers will prioritize essentials, and 25% plan to cut back on overall purchases in response to tariff-induced inflation. The Interactive Advertising Bureau (IAB), that plays a pivotal role in shaping the digital advertising ecosystem in the US notes that 94% of U.S. advertisers are worried about tariffs, with 45% planning to cut ad budgets. Meanwhile, 91% of consumers say they’ll shift their buying behaviour due to inflation and trade costs.
Around the world, consumers are reassessing their spending priorities. This is reflected in UK retail trends from 2024, described by RSM UK as being marked by “cautious spending and fragile consumer confidence.”
This global caution is echoed by Fitch Ratings, which forecasts “limited growth in consumption volumes and retail profits” for the EMEA region in 2025, citing soft confidence and higher operational costs.
Meanwhile, the Deloitte Consumer Tracker in the UK reported a flat consumer confidence index in Q1 2025, highlighting a shift away from discretionary purchases like apparel and towards essentials or experiences. This reallocation reduces overall sales volumes and profit margins in traditionally high-margin categories.
Rising trade tensions are forcing businesses to rethink how and where they operate. With new tariffs looming, many companies are exploring nearshoring options—bringing production closer to home—as a way to protect themselves from future disruptions.
While this move may lessen reliance on overseas suppliers, it comes with its own set of hurdles, including higher operating expenses and the need to invest in new facilities.
In this volatile environment, building a flexible, well-diversified supply chain is no longer optional—it’s essential for staying competitive amidst shifting global trade dynamics.
“These supply chains will need to become more agile, with companies making efforts to reduce excess inventory and minimize the risk of shortfalls. Margin pressures, as well as pressures from governments around the world to reduce emissions and fashion waste, will drive advances in inventory management. New technology will aid these efforts.”, says McKinsey’s The State of Fashion 2025 report.
Adding to the burden are rising rents, higher labour costs, labour shortages and inventory shrinkage. A recent Bain survey found that 70% of retailers see macroeconomic pressures as their top operational challenge.
Shopify estimates that the inventory shrinkage alone cost U.S. retailers approximately $142 billion in 2023. At the same time, investment in cybersecurity and sustainable practices—though critical for long-term resilience—add to immediate costs.
The rapid shift to e-commerce presents both opportunities and challenges. While online platforms allow access to broader audiences, they also bring intense price competition. Retailers are forced to slash prices to remain competitive, further compressing margins.
Meeting omnichannel expectations requires costly tech investments in logistics, inventory systems, and customer experience. These rising costs, while necessary to meet evolving consumer demands, don’t immediately translate into higher EBIT.
Retailers that invested in robust data strategies between 2020 and 2023 saw revenue grow twice as fast—and profitability surge four times more—than their competitors.
Despite a bleak near-term outlook, long-term growth potential remains. The IMARC Group projects that the global retail market, currently valued at USD 30,092.3 billion in 2024, will grow to USD 48,867.9 billion by 2033, reflecting a CAGR of 5.26% from 2025 to 2033.
But for now, the story is one of resilience under pressure. EBIT erosion is the symptom of a broader shift—a retail landscape defined by geopolitical friction, inflationary shocks, evolving consumer priorities, and the relentless race to stay relevant in a hyper-competitive digital age.
