The worldwide fashion sector is preparing for 2026, dealing with a market characterized by global unrest, economic unpredictability, and, most significantly, extraordinary U.S. Duties. With executives shifting their attention from “uncertainty” to recognizing the surroundings are merely “challenging,”, import taxes have become the primary obstacle for decision-makers.
TL;DR
- U.S. import duties are the primary obstacle for fashion executives in 2026, significantly impacting the industry.
- Apparel and footwear tariffs sharply increased, with average rates reaching 36% by mid-October 2025.
- Fashion leaders prioritize addressing trade disruptions and tariffs as the main driver for the industry's 2026 trajectory.
- Brands are adjusting prices, supply chains, and operations to mitigate tariff effects, emphasizing agility.
Executives informed McKinsey and the Business of Fashion for the 2026 edition of The State of Fashion report that the trade environment's seriousness is immense. Apparel and footwear import tariffs in the U.S., which were approximately 13% earlier in 2025, sharply increased to 54% after initial government statements in April. While these rates were later reduced, the average tariff rate for apparel and footwear from the top 10 import sources was 36% by mid-October, significantly higher than usual. This abrupt rise exposes the apparel and footwear sector among those most exposed to the substantial effects of tariffs. Highlighting this crucial state, 76% of surveyed fashion leaders consider how the industry will address trade disruptions and tariffs as the primary driver of its trajectory in 2026.
For the 10th anniversary of the report, which began in 2016, McKinsey and Business of Fashion charted the many changes for the industry since 2016, from a generalized “age of volatility” to Asia’s undeniable rise to disruptions in how shoppers shop. For 2026, they chart major issues, including “tariff turbulence” and three emergent shopper appetites: a focus on resale, a sense of “well-being” in their purchases, and a future marked by artificial intelligence (AI).
Brands are adjusting prices, altering supply chains, and boosting efficiency to mitigate tariff effects, according to the report. Major suppliers are focusing on optimizing their operations through digitization and automation, while smaller businesses face increasing challenges. “Agility will be the defining factor enabling brands and suppliers to maintain their competitive edge.” In response to this economic turmoil, Levi Strauss CEO Michelle Gass discussed her proactive and systematic approach to tariffs with Joan Kennedy of Business of Fashion, highlighting how the established denim company has effectively navigated the uncertainty.
Levi's strength, and difficult reality
Levi’s began this phase with a built-in benefit: roughly 60% of its operations are global, lessening the tariff impact compared to numerous domestic rivals with a stronger U.S. Presence. However, even with this edge, the tariff hikes necessitated strategic adjustments. Gass characterized the general climate as “very complex,”, involving economic trends, global politics, and significant upheaval in technology and AI. She also explained the essential, unavoidable need to transfer some expenses to customers, stating directly: “There’s only so much you can absorb from the tariffs, because they’re just very high.”
Levi's pricing strategy involves several elements: Firstly, it's enacting precise and focused price hikes, a common practice among apparel retailers, with 55% of executives anticipating further price rises in 2026 due to tariffs. Secondly, the company is strategically adjusting promotions, notably reducing discounts like “20% off” events, which aids in brand enhancement and offsets tariff effects by boosting profit margins. Thirdly, Levi's is adopting a pricing approach for innovation, capitalizing on new products where consumers are “likely willing to pay more.”
Levi’s did not respond to Coins2Day’s request for comment on more specifics about pricing increases to come.
Beyond pricing, Levi’s has prioritized internal operational prowess. Gass, who took over as CEO in 2024, has been driving a course correction focused on transformation, streamlining the business and reducing unwieldy inventory. Tactical moves included cutting slower-selling SKUs. More significantly, the company is undergoing a fundamental “rewiring” to reduce complexity across its network of 120 countries. By increasing the commonality of product across all global stores from less than 10% to about 40%, Levi’s is generating efficiencies across design, sourcing, and merchandising. As Gass summarizes this strategy: “We’re operating in a complex environment, but we ourselves are becoming less complex.”
This focused strategy has yielded positive outcomes. In October 2025, Levi’s announced a 7% year-over-year rise in quarterly sales, marking its fourth straight quarter of robust high-single-digit expansion. The firm also enhanced its full-year revenue projections, despite warning that tariffs would affect its fourth-quarter profit margins.
Businesses are generally adjusting to the updated trade landscape, as 35% of leaders intend to redirect their sourcing to nations with more advantageous trade pacts. Nevertheless, Levi's highlights that in an unpredictable trade climate, adaptability hinges significantly on strategic supplier relationships fostered through cooperation. Gass pointed out that Levi's personnel communicate with suppliers continuously, viewing it as a “relationship business” in which obtaining goods from various nations provides essential adaptability against tariffs and disruptions in the supply chain.