Offsetting the Tariff Tailwinds: A Sneak Peek into Tariff Impact on Retail and CPG

Dwindling the demand-supply equilibrium, the recent tariff hikes have halted normalcy for most companies in the retail and CPG sectors. While 2024 witnessed a sharp rise in global trade, accounting for $33 trillion, projections for 2025 state a forthcoming decline of around 1.5% in the former figure owing to the disruptions from tariff increases and uncertainties around trading policies.

Unsettling geo-economic situations and trade disputes are bound to impact the movement and supply of goods and services, with failing freight indices and supply-chain numbers, indicating weaker industrial growth.

The heightened tariff impact on the CPG and Retail sector is reflected in the following aspects:

• Sharp Tariff Rates

  Most CPG firms rely on global partners (China, EU, Vietnam, and Taiwan) for goods and raw materials. The USA, imposing as high as 54% taxes on goods imports, has created a harsh trade environment for providers and consumers who bear the end cost

• Disruptions to Supply Chain

  Significant tariff hikes are disrupting the supply chain for firms sourcing globally. Several manufacturers pass the increased cost to the consumers, deranging the production and supply balance, making companies rethink their sourcing and introduce tariff-based pricing strategies

• Margin Compression

  Landed costs (including duty, shipping, taxes, etc.) are facing a sharp increase due to tariff rise, compressing the profit margin and sales for the CPG and retail firms

• Shifting Consumer Behavior

  With sudden spikes in costs, made to be borne by the customers, buying behaviors are witnessing a gradual move towards low-cost, private alternatives and even a decline in demand, leading to more aggressive marketing and sales initiatives

• Volatile Markets

  Besides the inflation, the tariff impact on the retail sector is translating into geopolitical tensions and macroeconomic uncertainties, all of which make the consumers cautious and reluctant to buy, creating a furor in the global marketspace

• Retail Pressure

  In an attempt to stay competitive, leading retail giants are asking for discounts from manufacturers, further reducing the profit margins. Additionally, the pressure to sell better is forcing retailers to run everyday promotions and special offers for inventory clearance and flow.

Brace to Pace: Offsetting Tariff Impact on Retail and CPG

As tariff changes reshape the retail and CPG landscape, companies must think smart and act fast before getting swept off in the tariff tide. Combatting the challenges of rising costs, compressed margins, and uncertain consumer behavioral patterns calls for agile and adaptive strategies around pricing, inventory diversification and optimization of operational processes at large.

Let us take a detailed look at the areas that need intervention to withstand the ongoing changes:

• Operational and Cost Effectiveness

  Utilizing AI-powered tools and analytics, CPG and retail companies can work towards packaging optimization, and production cost reduction, to bring overall efficiency in operations and offset the tariff-based cost hikes

• Sourcing and Supply Chain

  Expanding the sourcing market by leaning onto the new suppliers across geographies (especially towards those countries with no tariff restrictions) will hedge against the hike by reducing dependency on existing sourcing vendors. Additionally, moving the production units closer to the major markets can save on logistical expenditure (shipping and transportation), adding agility to the process.

  Companies need to deploy advanced analytics to optimally source, gauge supply chain risk factors, and identify any potential disruptions for prompt response and seamless operations

• Market and Consumer Insights

  Using analytics as a guide for product reformulations, introducing new/alternative ingredients, or even creating differentiated SKUs is the way ahead for CPG and retail firms. They should also analyze consumer behavior patterns to create targeted marketing plans, promotional campaigns, and loyalty programs to keep the demands soaring despite the cost increase

• Price and Margin Management

  To understand and analyze SKU-level price elasticity and price simulations, retail companies must utilize advanced analytics. Whether the price change has to be absorbed to retain demand or to be passed on to the customer, these questions can be answered strategically by leveraging AI and machine learning-based analytics.

Smart product bundling (bundling the tariff-impacted products with domestic SKUs) can help reduce the cost impact for consumers. Another effective way to lessen the cost difference is by reducing per-unit shipping for products.

Retailers are re-aligning their operations and supply chains to withstand the volatile demand and logistical disruptions through tariff-driven demand forecasting and pricing strategies.

The Gartner Volatility Survey states the following actions and steps introduced by leading firms to offset tariff hikes.

Trending Tariff Tales: How CPG and Retail Brands are Handling Tariff Hikes

CPG and retail tariff trends in 2025 are compelling leading companies to adapt and re-discover business processes with AI and machine learning based technologies to mitigate the impact.

Here’s how some notable brands are walking down the business realignment path:

• Adidas

  Reducing their dependence on China for sourcing, the brand is encouraging localized sourcing in several regions to ensure a seamless supply chain and limited impact of tariff rise on their total costs.

• Luxury Cosmetic Brand (unnamed)

  As stated in a Gartner report, a cosmetic giant is utilizing digital twin simulations for the purpose of modeling trade scenarios. Besides allowing the brand to shift to cost-effective suppliers rapidly, this also enables it to achieve operational efficiencies and plan for any strategy for contingencies.

• TJX Companies (TJ Maxx and Marshalls)

  By switching to data-driven strategies for sourcing and buying, the TJX group is diverting focus on discount potential rather than getting stuck with fixed costs from suppliers. With this flexibility, the brand can offset the tariff hike pressures and maintain margins.

Fostering a Tariff Forward Economy: Looking Ahead of the Tariff Impact on CPG and Retail Sectors with WNS

Underpinned by industry expertise, technology, and experience in advanced analytics, WNS is continuously aligning client business outcomes to a future-ready economy by strategizing to overcome the recent tariff disruptions. Combining domain knowledge with proprietary and partnered tools, it is steadfastly converting obstacles into opportunities.

Using AI and Machine Learning as catalysts for growth, WNS has collaborated with some notable clients to create, sustain, and transform retail and CPG businesses in the following ways:

• Procurement Optimization and Dynamic Pricing

• Legacy Modernization and Digital Transformation

• Scenario Planning and Price Optimization using Advanced Analytics

• Digitization of the Supply Chain for Streamlining Operations

Building resilience by creating agile pricing and supply chain strategies to tackle the long-term impact of tariffs is the way forward for CPG and retail companies. As the global economy fears potential headwinds and GDP contraction by 2026, the sector must navigate these uncertain times through a holistic shift, driven by AI and advanced analytics.

By strategically focused initiatives of price optimization, supply chain flexibility, demand forecasting, and scenario simulation for planning, WNS has been strengthening client operations and outcomes globally. Co-create AI-driven retail strategies that boost resilience, margins, and growth with us. Talk to Our Experts today by clicking here.

FAQs