The Tactics Small Brands Are Using to Navigate Tariffs

Since Donald Trump announced his sweeping tariffs last month, Stockholm-based label Lisa Yang has been moving quickly to incorporate its business in the US.

For chief executive Samuel Stenberg, the rationale is clear: Instead of sending its luxury knitwear from China’s Inner Mongolia, where it’s produced, to the brand’s international fulfillment centre in Belgium and then shipping it to the US, it could import goods directly into the US market. That way, it would only be charged customs duties on the price it paid for the goods, rather than the value they sell for in the European market, without the need for complicated paperwork to prove the original cost. Even with the tariff on China, reduced to 30 percent on Monday, it would be more cost effective.

“We avoided it before because there wasn‘t a clear business case,” Stenberg said of setting up an entity in the US, which accounts for 20 percent of the brand’s sales. “Now, there is.”

Trump’s on-again, off-again tariffs — the most severe of which are, for now at least, on pause — have caused chaos for companies across the fashion industry, but smaller, independent brands with a high percentage of customers stateside and production outside the country are particularly vulnerable to these changing policies. They’re less likely to have diversified supply chains that allow them to shift production to locations with lower tariffs, and less likely to have the scale and cash flow to easily absorb higher costs. Many operate on shoe-string budgets and low margins already.

To navigate the turmoil, small brands are turning to different solutions, such as finding measures to reduce their duties, looking to markets other than the US, devising ways to make price increases more palatable to shoppers or just bearing the costs to avoid losing sales.

“Independent brands need to be decisively modeling different pricing and supply chain scenarios,” said Joanna Rangarajan, managing director at Alvarez & Marsal’s Consumer and Retail Group. “You can‘t afford to be reactive.”

Finding Solutions

For Miista, which was founded in London and does its manufacturing in Spain and Portugal, maintaining a strong presence in the US despite the tariffs is non-negotiable. It gets over 40 percent of its revenue from the market. Currently it’s focused on expanding its US warehousing operations.

“We’re trying to move fulfillment to the US to avoid surprise duties,” said Pablo Villasenín Sánchez, Miista’s director of business development. “The uncertainty is just too great.”

It isn‘t just the US tariffs Miista has had to worry about. The brand had planned a pop-up in Toronto that it was going to stock with inventory from its New York store, but in March, Canada implemented a 25 percent levy on US goods in response to Trump’s tariffs. The brand decided to go ahead with the pop-up anyway and eat the costs, sacrificing profit for the sake of connecting with customers. (While Canada announced a six-month exemption for many US goods, the retaliatory tariff remains in place on clothing and cosmetics.)

One of the first courses of action taken by handbag brand Freja NYC, which manufactures in China and sells 85 percent of its inventory in the US, was to start front-loading inventory. Even before Trump announced his so-called Liberation Day tariffs, many companies had begun ramping up imports in preparation for some level of duties. That urgency only increased after Trump revealed tariffs far higher than analysts expected and then offered a 90-day pause for all countries except China that’s set to expire in July.

“We have stock in our US warehouse until Black Friday,” said Freja NYC founder Jenny Lei.

Companies are seeking ways to cut other costs not related to the tariffs. Denim-focused New York menswear brand 3sixteen has switched from in-person team meetings that require travel to holding virtual calls instead and opted out of hiring pricey props for photoshoots. Co-owner Andrew Chen said the situation has forced the brand to get more creative.

Rigorous cost mitigation is where Rangarajan said many brands should be focused.

“You need to re-forecast over a two-year horizon,” she said. “Reassess your cost structure, protect your margin and, most importantly, protect your customer. Once they leave, it’s so hard to get them back.”

The Pricing Question

Like every brand in its position, 3sixteen is also having to decide whether or not to raise prices. The company is among those that actually manufacture in the US, but its flagship denim is woven in Japan, with other components sourced from Turkey and China. For now, it has chosen to absorb the tariffs — and the hit to its margins — rather than pass the cost on to customers.

Top luxury names may have less price-conscious clientele that won‘t balk at price increases, but many smaller brands don‘t have that benefit, particularly in the affordable luxury category.

“Price point is so important,” said Lei. “Freja is that option for young women who are in school or graduating, want a new bag but are not going to be dropping $2k on it.”

Lei intends to hold out on hiking prices as long as possible, but if she has to give in, she said she plans to offer customers something along with the increase, “like new, elevated packaging.”

Giving shoppers some sort of value in exchange for their extra dollars is critical for many smaller brands, according to Alvarez & Marsal’s Rangarajan. Shoppers notice price hikes, so brands should aim to improve their products to match and communicate clearly why prices are going up. Short-term margin focus often can‘t — and shouldn‘t — be the most important thing.

“In some cases, it makes sense to sacrifice margin points for market share. What you lose in margin can be gained by acquiring more customers at your price point,” said Rangarajan.

For Lisa Yang, price increases would depend on the extent of the tariff. The brand sells cashmere pieces that can range from around $500 to more than $1,000. If its products were hit with a tariff of, say, 50 percent, prices would likely have to go up, according to CEO Stenberg. It’s lucky in that it believes its customers would accept price hikes — up to a point.

“With our positioning, a 10 percent price increase should be doable. Higher than 20 percent would be too high,” said Stenberg.

Beyond the US

As important as the US market is, brands are concluding that they might find better opportunities elsewhere for the moment.

“If tariffs force us to shrink our US exposure, so be it,” Stenberg said.

Miista, whose urban aesthetic already resonates in cities around Europe, is looking to leverage growing interest in markets like Australia. Lei of Freja NYC is setting her sights abroad, too.

“The Middle East, especially the Emirates, have been good for us and we’ll expand there,” she said. “Same goes for Canada, Australia, Hong Kong and Singapore”

To Rangarajan, expanding to other countries makes the most sense if brands have already established some sales base in the markets they’re targeting. Just starting now could prove difficult.

Still, for many small brands, looking to other markets may be a more reasonable option than moving production to countries with lower tariffs. For Miista, traditional craftsmanship and an investment into in-house production sites in Europe precludes shifting its manufacturing elsewhere.

“Our product is rooted in tradition and the ecosystem of Spain and Portugal for generations,” said Villasenín Sánchez. The Iberian peninsula is known for its high-quality leather work, and Miista’s success in footwear fusing avant-garde, London-inspired design with traditional Iberian craftsmanship is what allowed the brand to expand from footwear into new categories like clothing, which now makes up around 20 percent of sales.

Even though 3sixteen already makes about half its goods in the US, Chen ruled out the idea of moving more production to the US, citing quality concerns.

Freja NYC’s Lei was emphatic: “I’m not moving production,” she said. “The factory in China went back and forth with me over just 100 bags at the start. You don‘t walk away from that kind of relationship.”

Instead, the brands will continue searching for ways to mitigate the impact of the tariffs, or look for sales elsewhere.