Retail’s Big Test: How Tariffs and Early Shopping Shape Back-to-School 2025

Welcome to Retailistic, the official podcast of Coresight Research for July 1st, 2025. This week, we kick off our coverage of the back-to-school shopping season with senior analyst Madhav Pitalaya discussing the macroeconomic forces impacting this all-important retail tradition. But before we get to that conversation, let's review some of the research in the queue for this week.

Leveraging proprietary U.S. consumer survey findings, we will analyze how consumers celebrated Easter, Mother's Day, Memorial Day, and Father's Day in the second quarter of 2025. We will also assess holiday shopping expectations for calendar events in the third quarter, Fourth of July, Labor Day, and Amazon's Prime Day, as well as the end-of-year holiday season.

We will discuss major market trends and themes disrupting the U.S. apparel and footwear market, spanning AI-powered agility, the rise of resale, and more. We'll offer insights on key trends that unfolded during China's 618 shopping festival. We'll preview Amazon Prime Day in India, which is set for July 12th through the 14th.

And you can get our preview of the U.S. Prime Day as well. Our upcoming monthly installment of our U.S. Store Tracker Extra series will detail U.S. retailers' store closures and opening announcements from June 2025. as well as the square footage impacts of these developments. Our weekly U.S. store openings and closures tracker and weekly U.K. store openings and closures tracker, both publishing every Friday, report on the latest store closures, store openings, and bankruptcies.

You can access all of these reports on Coresight.com. Now let's talk with Madhav Pitalaya, Senior Analyst at Coresight Research and an expert on retail trends. Thanks for being here, Madhav. Thank you for having me, Philip. I'm excited to discuss these important issues. I'll have to admit, I know the holiday season is huge for retail, but I'm a bit naive about back-to-school shopping. How important is this season for retailers, really?

yeah so back to school often lumped together with back to college back to class is actually the second largest retail season after the winter holy days it's extremely important Families stock up on clothing, school supplies, electronics, dorm furnishing, a whole range of products as a new school year approaches. For retailer, it's critical revenue driver and a parameter of consumer spending health.

The National Retail Federation notes that the back to school season is an important time for retailers and the consumers. In dollar terms, it's huge for K-12 students alone. Total back to school spending in the US is expected to reach roughly around 38 billion this year, which is the second highest level on record, just shy of last year's around 42 billion record. and if you include college students back to college spending is even larger forecast around 86 billion

So combined, we are talking well over 100 billion in consumer spending focused on educational related needs in 2025. That's why retailers place so much emphasis on this season. Those are impressive numbers. Why is back to school so large? What categories are driving that spend? The spending covers a mix of essential categories for students, for families with kids, in elementary.

Thoreau High School. The highest buckets are typically clothing and accessories, electronics, school supplies like notebooks, pens, backpacks and shoes. for example this year k-12 families plan to spend on an average about 875 in total with roughly 300 dollars of debt on electronics 250 on apparel 170 on shoes and 40 on school supplies. Electronics have been a major driver in recent years. Last year, a record 69% of back-to-school shoppers planned to buy a laptop.

tablet or similar devices for their student. Since those devices are pricey investments often used for several years, this year interest in electronics slightly lower since many families already bought new devices recently. Instead, we may see a bit more focus on replacing apparel and basic supplies which are recurring needs. But overall all these categories matter and retailers strategize differently for each. One more thing on timing.

I've noticed some stores start advertising back-to-school deals surprisingly early, even in the summer. Is the shopping really starting earlier nowadays? Yes, the back-to-school shopping season has crept earlier in recent years. Many consumers don't wait until late August. They start in June or July. In fact, NRF survey found that by early July this year, over half, roughly 55% of back-to-school shoppers had already begun purchasing school items.

One reason is that retailers have rolled out summer sales event. For instance, Amazon Prime Day in July and competing promotions like Target Circle Week or Walmart's Deal Days. Shoppers are taking advantage. Around 85% of back-to-school shoppers say they will use July deal events like Prime Day to buy school necessities. Consumers have learned that some of the best discount might come well before the first school bell rings. Also, economic factors like inflation

or this year tariffs. Encourage families to spread out purchases and hunt for bargains rather than doing one last minute spree. One survey even noted that about 34% of consumers are focusing more on discounts and 28% plan to stick strictly on essential items for back to school. So retailers that offer early birds deal and competitive prices in mid-summer are capturing those budget-conscious shoppers. The season now stretches across the whole summer.

In short, back to school is both highly significant and starting earlier. It's a vital period where retailers can build momentum and clear inventory ahead of the holiday rush. Historically, Analysts even watch back to school as a predictor for the holiday season. A strong back to school often votes well for ear and retail performances. That makes a lot of sense. Let's talk about the bigger picture now.

We are halfway through 2025. What are the economic indicators telling us so far about consumer spending in the retail environment? Are consumers in good shape this year?

Overall, the US consumer has been resilient in 2025, though there are some mixed signals and growing uncertainties. Let me break down a few key indicators. Retail sales? Consumer spending in retail has continued to grow this year. Through the first five months of 2025, retail sales, excluding automobiles, gasoline and restaurants, were up about 4.95% year over year. That's a solid growth. albeit slower than very high growth rates we saw when inflation was peaking last year. Importantly,

This 5% growth is nominal and inflation has been running around 2-3%. So, there is modest real growth in spending. For example, In May 2025, retail sales were 4.4% higher than May 2024, while consumer prices were about 2.4% higher than a year ago. So, consumers are buying more, not just paying more. In April, we actually saw an even stronger retail jump over 6% year over year as some demand was pulled forward. Shoppers are becoming cautious but not retrenching completely.

The NRFCO stated that some of the early year spending surge was due to consumers pulling forward purchases ahead of expected tariff increases. Now that rush is over, spending is normalizing. Consumers haven't stopped spending by any means. Consumers' fundamentals like employment and wages remain fairly healthy, but they are adjusting how they spend.

We see evidence that many consumers are trading down, choosing cheaper option or value brands rather than cutting out purchases entirely. For instance, instead of foregoing new cloth for their kids, A family might opt for more items on sale or from discount retailers. This aligns with reports that uncertainty is arising.

but households still have jobs and some savings to support essential spending. In fact, one bright spot helping consumers has been lower fuel prices, which free up a bit of income for other purchases. As I mentioned we saw unusual patterns earlier this year due to the new tariffs. In April, categories like electronics and apparel had a spike because both consumers and businesses tried to buy certain goods before higher tariffs hit. That front loaded some sales.

By May, that effect dissipated. For example, electronic sales dipped after April's spike, but year over year, they were still up a few percent. So the underlying demand is there, just the timing shifted. The phrase we are hearing is economic uncertainty is increasing. Consumers know prices might rise later in the year due to tariffs and other factors, so they are bit more cautious now. But importantly, consumer sentiment hasn't collapsed. People are still spending on priority items.

Major retailers like Walmart have noted that while shoppers are cautious on discretionary buys, they continue to celebrate holidays and will likely spend on back-to-school needs. That suggests basic seasonal buying like back to school is expected to hold up even if people cut back on more optional indulgences. In summary, 2025's indicators show moderate retail growth, easing inflation, and a consumer who is value conscious but still shopping. Employment is relatively strong.

and income growth is steady which provides support. However, there is definitely an undercurrent of caution due to things like interest rates which remain high. and especially the new tariff regime which could lead to price increases down the line. We are in a bit of holding pattern.

Spending is good now, but everyone is watching whether higher costs or other economic headwinds relate later in the year. It sounds like a cautious optimism situation. Growth is there, but everyone's eyes are on the risks. You've brought up tariffs a few times. As a naive observer, can you walk me through what's happening with the new tariff regime in the US and why it's such a big deal for retail? Absolutely.

This is a crucial development in 2025. In early April, the US government under President Trump announced a sweeping set of new tariffs. Essentially, it's a policy of reciprocal tariffs targeting countries that run large trade surpluses with the US. The announcement on April 2, 2025 really sent shockwaves through supply chain and the retail world. To summarize the specific actions, the US imposed a blanket of 10% tariff on most imports from almost all countries. That alone is significant.

It's like a universal import tax that raises the cost of a huge range of consumer goods by 10%. But on top of that, certain countries were hit much harder. China in particular faced an enormous tariff increase. Initially, an additional 84% tariff was announced on Chinese goods. which was then hiked 225% additional in an executive order on April 9. When combined with prior tariffs,

Imports from China and Hong Kong and Macau are now subject to staggering 145% tariff in total. This is an extraordinarily higher tariff rate. It effectively makes many Chinese made products more than double in cost for US importers. Other countries saw specific rates too. For example, the EU was slated for 20% tariffs. the UK 10% and several major manufacturing countries for apparel had elevated rates. The UK analysis noted Vietnam at 46%, Bangladesh at 37%, India at 27%.

Turkey 10% among others. These numbers reflect the reciprocal approach roughly proportional to trade imbalances and were the state of play at the time of writing in April. Now, there have been some adjustments. Less than 24 hours after the steepest tariffs hit, the administration announced a 90-day pause, a temporary rollback for the hardest-hit countries.

That pause, effective April 10, reset many countries tariff back to 10% for the time being. China's however remained very high 125% extra despite the pause. Also, certain critical product categories got exclusions. For instance, on April 11, the US exempted some high-tech items like semiconductors and cell phones from these new tariffs.

But broadly speaking, as we head into the back-to-school season, most imported goods are subject to at least a 10% tariff and the goods from China face primitive tariff well into triple digits. This is what we mean by new tariff regime. That's a big change in the cost structure. Help me connect the dots. Why do these tariffs matter so much for retail and supply chains?

They matter because modern retail supply chains are global. The US retail industry relies heavily on import for inventory. Everything from the clothes on store racks. to the components in consumer electronics are often produced abroad. When you suddenly slap tariffs of 10%, 50% or over 100% on those imports, a few things happen. First

Cost and prices rise. Tariffs are essentially a tax on imports. Someone has to pay that tax. In the short term, many retailers and brands are grappling with whether to absorb those costs. or pass them on to consumers If a backpack was sourced from China at 10, a 125% tariff means an extra $12.5 in tax, making it $22.5 before the retailer's own margin. A huge jump.

Retailers might try to absorb a portion to stay price competitive, but ultimately a lot of these costs will translate into higher consumer prices. We are likely to see inflationary pressure building. In fact, UK analysts noted that global inflationary pressure are an inevitable result of these tariffs. Even supermarkets which import relatively little directly will feel it indirectly. as the cost of many goods in the supply chain increases. For shoppers, this could mean noticeable price hike.

On a range of products, surveys already show consumers are noticing price increases. About 17% of U.S. back-to-school shoppers said they have seen significant price upticks on items like pens. notebooks and backpacks, which are often imported. And the NRF economists have cautioned that meaningful price increases are likely in the coming months as the tariffs filter through.

So higher prices are a key implication. These tariff changes didn't happen in a vacuum. They were announced and implemented rapidly, which caused a lot of turbulence in supply chains. There was confusion about rules. Customs had to issue new guidance, for example eliminating duty-free exemption on small shipments from China. And there were rushes to ship goods before tariffs took effect. One report noted a mid-May export rush from China after the temporary tariff rollback was announced.

Basically, Chinese exporters and US importers racing to get products out during the 90-day pause window. This kind of rush can create uneven inventory levels. Some retailers suddenly had a glut of certain items that arrived early, while others might face lulls later if they didn't ship in time. A UK supply chain analysis described how uncertainty itself caused disruptions affecting the availability of certain products in a store. So, retailers have had to adjust on the fly.

expediting some orders, finding alternative suppliers and generally preparing for possible delays at ports or customs. The logistics side become more complex. Carriers have to handle more formal entries now that even low-value shipments from China are taxed. Companies may need to build in more inventory buffer. For instance, Those practicing just-in-time inventory might increase safety stock in case their shipments get stuck in customs.

All of this is friction that makes the retail supply chain less efficient at least in the short term. Long term, if these tariffs persist, we likely see retailers and brands making more strategic changes to their sourcing. 10% tariffs on all imports create an incentive to find non-imported alternatives or negotiate harder with suppliers. And a 145% tariff on Chinese made goods is almost unsustainable.

It's promising many brands to revisit their manufacturing and sourcing plans immediately. Companies that have big reliance on China, especially in clothing and footwear, which is most heavily impacted sector, are now in a bind. Many fashion retailers were already diversifying away from China to places like Vietnam or Bangladesh. But as we discussed, those countries ended up with significant tariffs too. For example, Vietnam 46%, Bangladesh 37% in the initial scheme.

So retailers are accelerating moves to diversify and regionalize their supply chains. For instance, exploring sourcing in countries not hit by extra tariffs or increasing production domestically or in Mexico. which thanks to trade agreement is relatively spared. These shifts take time though you can't flip your supply chain overnight. In the meantime, Some brands might try to renegotiate with US retail partners, adjust purchase orders or even delay product launches.

We have heard warnings that if tariffs stay at these levels, brands' costs will rise so much that prices will have to increase and margins will be decimated, putting jobs and investments at risk. It's a serious challenge that is forcing retailers to think strategically. Well, it sounds like lose-lose, higher prices for consumers and headaches for supply chains. Are there any mitigating factors or bright spots?

For example, you mentioned a 90 day pause. Has that given retailers breathing room? And how are things looking as the back to school season approaches under this regime? There have been a few mitigating developments, yes.

The 90-day pause from early April to early July on May tariffs gave retailers a bit of time to adapt. During that window, a lot of businesses pulled forward inventory.

especially stocking up on goods while the tariff rates were temporarily lower. That should help availability for back to school. In fact, PwC's Consumer Survey noted that while there might be some uneven inventory due to that rush, many retailers are expected to recover inventory levels before the peak back-to-school shopping period hits. Another factor is that some governments like the UK and EU are in negotiation to possibly reduce those tariffs.

There is a chance that by the time that full tariffs come back, new trade deals or exemptions might alleviate some pressure, though nothing is guaranteed. Additionally, as I mentioned, the U.S. carved out exclusions for certain electronics like smartphones, semiconductors, recognizing that hitting those universally would harm consumers.

So not every single item will see a price jump. For example, flagship smartphones might avoid a tariff induced price hike due to those exemptions. For back to school specifically, Retailers have been planning proactively. They know this is a critical season. Many large retailers have said they were locking in supply and prices early.

Some have diversified their assortment to include more domestic or tariff-free sourced option and most are doubling down on promotions to ensure they move merchandise even if consumers are skittish about price tags. The spending surveys like from NRF and PWC suggest that despite these challenges, parents are determined to prioritize school needs.

Nearly three in four back-to-school shoppers plan to spend the same or more as last year and over a third actually expect to spend more than they did in 2024. That resilience is encouraging for retailers. It implies that if they manage to get the products on shelves at a decent price, consumers will find a way to purchase what their kids need for school, even if it means cutting back elsewhere or hunting harder for deeds.

Retailers that manage their inventory well and clearly communicate value are likely to outperform in this environment. In short, tariffs are a major headwind raising cost and logistical complexity. But the industry is adjusting quickly and consumer demand for the season appears to be holding up so far. It's impressive how adaptable the retail industry can be.

Let's talk more concretely about those strategies. How are retailers and brands responding to these economic and tariff challenges in specific product categories? For example, What are they doing differently in apparel versus electronics or school supplies to navigate back to school 2025? This is a great question because strategy is needed varying by category.

I'll break it down by some key segments, starting with apparel and footwear. These are among the hardest hit categories by the new tariffs because so much apparel is imported. As we discussed, Clothing from China now carries an exorbitant tariff 145% and even imports from other common sourcing countries have additional duties.

Retailers and brands in this space are pursuing a few tactics. Firstly, many are accelerating supply chain diversification. For instance, shifting orders to countries with the lowest tariff burdens. or exploring near-shoring producing in regions like Latin America to mitigate risk. A number of brands are re-evaluating their sourcing strategies and profit forecasts given the tariff impact.

Some apparel retailers are negotiating with suppliers to share the extra cost or invoking contract clauses to adjust pricing. From a merchandising perspective, Retailers might focus on essential back-to-school clothing items such as uniforms, basic jeans and shoes and ensure those remain priced competitively, even if it means tighter margins on those.

They can then offset by having more premium or fashionable items at higher price points. Promotions will play a role too. Expect clothing retailers to offer strong back-to-school discounts to keep volume up. while quietly adjusting prices on new collections if needed. Essentially, the strategy is to keep customers coming in for affordable basics despite cost pressures and manage profitability through mix and sourcing.

Retailers with private label apparel lines may have an edge as they can more directly control production locations and cost. We are also seeing some retailers time their inventory, ensuring they imported a lot of fall merchandise before tariffs kicked in to carry them through the season.

Consumer electronics for students like laptops, tablets, calculators were a huge part of back-to-school spending last year. And while demand might temper this year, it's still significant. The tariff situation here is a bit nuanced. Many electronics are made in China, so they would face high tariffs. But as noted, the US exempted certain electronics like smartphone and some semiconductors from the new reciprocal tariffs.

and there was already an existing structure of tariffs from prior trade policies. Retailers in electronics are focusing on value-added offers to entice consumers who might be more budget-conscious now. For example, we might see more bundle deals, a laptop that comes with a free printer or software package, student discounts or extended financing plans. Buy now, pay later options for expensive tech.

Since many families bought new devices in past couple of years, retailers are also adjusting their marketing, highlighting upgrades or accessories rather than pushing everyone to buy a brand new laptop. They are aware of the slight drop in electronics interest as last year's purchase can last for few years. On the supply side, electronics, retailers and brand likely rushed in shipments of popular items before tariffs and are working with distributors to avoid stockouts on key gadgets.

Some are even advocating for policy relief. For instance, making sure the government's exclusion cover as many school-related electronics as possible. Overall strategy here is about maintaining sales momentum through deals and financing while carefully managing inventory and pricing so that any necessary price increase due to tariffs on components or accessories don't shock.

the consumer. A practice example, if the cost of importing a certain tablet went up, a retailer might keep the sticker price the same but offer a smaller gift card incentive than last year. Effectively, passing same cost to the consumer, school supplies and stationery, things like notebooks, pencils, folders, art supplies, is highly price sensitive. and typically lower margin. Even in normal times, retailers compete to be the cheapest on basic school supplies because it drives food traffic.

Think of those 25-cent notebook or $1 packs of crayons in weekly ads. Now, with inflation and tariffs, the cost of these goods has risen. Many supplies... are imported from China or elsewhere. Indeed, the cost of basket of school supplies has been rising faster than overall inflation in recent years. One figure showed around 24% increase over two years for supplies. Retailers know that nearly all consumers over 90%.

are prioritizing low prices on school supplies when they shop. So the strategy is to double down on value messaging here. Many big retailers are absorbing some of increased cost on supplies to keep those headline prices low, essentially using supplies as loss leaders. They'll advertise very aggressive deals on notebooks, paper.

pens to get families into the store or onto their website. Additionally, detailers are pushing their private label, store brand, school supplies, which are usually cheaper alternative to name brands. By controlling the production, often outsourced to lower cost regions, they can price these competitively and still protect margins a bit.

We might also see bundle promotions, for example, buy one get one free on packs of notebooks to give the perception of savings. Another adaptation is ensuring stock availability. Nothing frustrates a parent more than an empty shelf for a required supply item, so retailers are trying to keep the supply aisle well stocked despite any import delays. The emphasis in this category is promotions,

price freezes and clear communication of deals to convey that retailer is helping parents get everything on the list without breaking the bank. It's all about volume and loyalty. Win the customer on cheap supplies and hope they'll also pick up a backpack or cloth during the same trip. Back to school season also boosts some other retail segment. Footwear is one.

It often goes hand in hand with apparel, new sneakers for school. Footwear faces similar tariff issues as apparel since a lot is imported from Asia. Shoe retailers are likely employing similar sourcing shifts. and selective pricing strategies then there is the off to college segment furniture bedding small appliances those items such as mini fridges microwaves decor

can be affected by tariffs too. Many are imported. Retailers in that space like home goods store, are carefully watching tariffs on furniture, household goods which have fluctuated and may have increased domestic sourcing or early imports. Some are offering combos, for example Dom starter kits to provide value. Also, interestingly, we anticipate that off price and thrift retailers could see a boost.

When new goods, price rise, budget-conscious families turn to second-hand or discount outlets. So some retailers are highlighting their discount credentials. Across all categories, A unifying strategy is clear communication and marketing. Retailers know shoppers are anxious about prices this year. So they are emphasizing messages like a back to school best price guarantee or

score all your essential for under $X. They are using data-driven marketing. For example, targeting consumers with personalized coupons via email, text, because as studies show, Shoppers are actively looking for deals and even leveraging tactics like leaving items in carts to get coupon offers. Retail brands are responding by making make sure they engage customers on those channels.

email, SMS with timely tailored promotions. The goal is to convince the customer that we have affordable options for you despite the headlines about inflation or tariffs. Finally, detailers are monitoring the situation in real time. If, say, a tariff negotiation breaks in late July, or some duties are reduced leading to lower cost on certain items, successful retailers will quickly adjust their pricing or promotions to pass some savings to consumers and capture goodwill and market share.

It's very dynamic playbook this year but the bottom line is retailers are working hard to maintain value for shoppers and secure the sales in each category using a mix of sourcing, ingenuity, pricing strategy, and promotional savvy to navigate the economic challenges. we as consumers experience just as sales or stock on shelves. It seems retailers are pulling every lever from supply chain shifts to marketing to make this season successful.

Before we wrap up, Madhav, any final thoughts or advice for those in the retail industry listening? What should they keep an eye on through the rest of the back-to-school season and heading into the holidays? I would say the keys to stay agile and data-driven. Keep a close watch on few things. Tariff developments. The situation is still evolving.

Any chance in tariff policy or extensions of the POS will have immediate effects on cost, possibly consumer prices. Retailers should be ready to react, whether that's adjusting orders, repricing items or updating marketing. if, for example, tariffs get eased on certain goods. Conversely, if trade tensions escalate further, say tariff exemption expire or retaliation grows, having contingency plans,

alternative suppliers, inventory reserves will be crucial. This season will yield a lot of data on how consumers respond to higher prices and economic uncertainty. Are they buying fewer items, trading down or delaying purchases? For instance, if we see that shoppers are only buying the bare minimum for back to school, that could signal a tougher holiday season ahead.

retailers should analyze their sales in real time, which categories are underperforming or overperforming, and adjust. The good news is, as we discussed, early signs show consumers are still spending for school. But they might be prioritizing differently. So retailers might want to reallocate efforts to the categories that are moving. Given the disruptions we talked about, it's important to monitor inventory levels closely.

Still throw rates may differ from previous years. Patterns due to the early shopping trend and the tariff induced timing shifts. The best retailers will use demand forecasting tools. and be ready to reorder or transfer inventory between stores if needed to meet the regional spikes in demand. Also, it's worth continuing to build flexibility in logistics.

For example, having secondary suppliers or the ability to expedite shipments if a particular item suddenly faces a shortage. Lastly, I would emphasize communication and transparency. Retailers that can effectively communicate value and even explain price changes if necessary will retain customer trust.

Some retailers have been candid in press releases or signage about higher costs and emphasizing the deals they are offering to help families out. That can resonate with consumers who appreciate the honesty. This season is an opportunity to strengthen loyalty by showing that despite challenges, you are on the customer side in helping them get what they need for their kids' education.

Overall, I remain cautiously optimistic. Back to School 2025 has some headwinds, but still it's also demonstrating how resourceful the retail industry is. If retailers execute well, they can still achieve growth and satisfy customers. And as always, a successful back-to-school season often bodes well for the all-important holiday quarter. So everyone will be watching the outcomes closely.

It's a pivotal moment to learn and set the tone for the remainder of the year. Fantastic insights, Madhav. Thank you for unpacking a complex situation in such a clear, analytical way. I'm sure our listeners working in retail have plenty of takeaways from category specific tactics to big picture trends. It was my pleasure. Thank you for having me. And I wish all the retailers out there a successful season ahead.

Thanks, Madov, and thank you for joining us. We hope you will come back next week when Debra returns with a very special guest to discuss sustainability and the circular economy. If the topics we cover on Retailistic are important to you, come check out our catalog of over 7,000 reports, Have a wonderful day, and we'll see you next week.