Navigating Tariff Turbulence: Why Discount Retailers and Luxury Brands Are Winning the Trade War

As global trade tensions escalate, consumer stocks are facing unprecedented headwinds from rising tariffs. Yet within this chaos, two distinct strategies are emerging as pathways to outperformance: discount retailers like TJX Companies and tariff-resistant luxury brands such as Kering's Gucci. Meanwhile, companies with high exposure to Vietnam-based supply chains—like Tapestry and Deckers—are struggling to navigate these headwinds. Let's dissect the sector-specific risks and opportunities, using earnings call signals and inventory trends as our guides.

The Tariff Landscape: Risks and Opportunities

Tariffs are reshaping consumer retail dynamics. The U.S. imposed a 10% tariff on Chinese imports in early 2025, while Vietnam-based goods—critical for footwear and apparel—are facing rising duties. Companies with flexible supply chains and pricing power are thriving, while those reliant on high-tariff regions are buckling under margin pressure.

Source: Yahoo Finance

Discount Retailers: TJX's Resilience

TJX Companies (TJX) exemplifies how off-price retailers can thrive in a tariff-scarred environment. Its Q4 2025 earnings revealed:
- Tariff Insensitivity: The company sources less than 1% of inventory from China, with most goods coming from Europe and Asia's “tariff-free” hubs. Even the new 10% China tariffs will have an “immaterial” impact, as CEO Ernie Herrman noted, because most Chinese imports are already “pre-committed” and hedged.
- Inventory Agility: TJX's inventory shrink (loss/theft) dropped due to anti-theft tech like body cameras, boosting gross margins. Its flexible buying model—“treasure hunting” in liquidation markets—ensures it can pivot to cheaper, tariff-free sources.
- Outperformance: TJX's Q4 EPS beat estimates by 6%, with comparable sales rising 5% despite one fewer selling week.

Luxury Brands: Kering's Tariff-Proof Strategy

Kering (KER.PA), owner of Gucci, is executing a dual strategy to insulate itself from tariffs and weak consumer spending:
- Price Architecture Adjustments: Gucci is rolling out lower-priced silk scarves and limited-edition collections (e.g., The Art of Silk campaign) to attract price-sensitive buyers without diluting prestige.
- Cost Cuts: Kering closed 25 stores in Q1 2025, including 10 Gucci locations, to reduce OPEX. CFO Armelle Poulou emphasized “decreasing operating expenses” to offset tariff-driven margin pressure.
- Creative Revitalization: The appointment of Demna Gvasalia as Gucci's new creative director aims to reignite growth through bold, novel designs.

While Kering's Q1 revenue fell 14%, its focus on high-margin categories (beauty, scarves) and brand prestige positions it to rebound as luxury demand stabilizes.

Caution Zones: Tapestry and Deckers' Vulnerabilities

Not all consumer stocks are prepared. Tapestry (TPR) and Deckers (DECK) face severe headwinds:
- Tapestry: Its Coach brand relies on China imports for handbags, and while tariffs are “immaterial,” its inventory has surged to $937M—a 13% year-over-year jump—due to overstocking. This risks markdowns in a slowing market.
- Deckers: Its HOKA division, reliant on Vietnam-based production, faces a projected $150M tariff-related cost increase in 2026. Deckers plans price hikes, but U.S. consumers are increasingly price-sensitive, with DTC sales slumping as shoppers prioritize in-store exploration.

Investment Takeaways

1. Buy TJX: Its tariff-light supply chain and inventory efficiency make it a top pick for defensive retail exposure.
2. Hold Kering: Despite near-term weakness, its margin-protecting strategies and brand strength position it to outperform once luxury demand stabilizes.
3. Avoid Tapestry and Deckers: High inventory and tariff costs make them risky bets until they demonstrate pricing power or supply chain agility.

Final Word

The tariff era is a winnowing process: companies with flexible supply chains, pricing discipline, and premium brand equity will outlast those stuck in vulnerable supply chains. Investors should favor discount retailers like TJX and luxury stalwarts like Kering, while steering clear of over-leveraged peers.

Stay agile—trade wars favor the adaptable.