Tariff headwinds raise concerns around margin pressure for H&M

As the US escalates its trade war with new tariffs on imported goods, we see rising risks of continued margin pressure for H&M. While competitors are similarly affected, the scale of these new tariffs will likely be difficult for H&M to fully pass on to customers, at least not immediately. That said, there are still many uncertainties, and the situation remains fluid.

Tariffs challenge H&M’s US sales

The newly announced US tariffs represent a quite big hit to the entire American fashion industry, in addition to the challenges of a generally weakening global economic outlook and increasing uncertainty. Under the current US administration, conditions can change rapidly, but according to the current plan, the tariffs are set to take effect next Wednesday. The US accounts for approximately 15% of H&M’s total revenue, and its key production markets are in Asia, which means that the company will likely suffer from the tariffs. Particularly concerning are the tariffs targeting China, one of H&M’s largest sourcing markets, which will now face a 34% tariff on top of the 20% imposed earlier this year, bringing the total levy to 54%. However, countries like China have already mentioned counter-tariffs, which could change the situation. Nevertheless, trade wars increase uncertainty and is negative for demand.

Increased risks of further margin pressure

H&M has previously stated that it believes it is in an equal or even stronger position to manage these challenges, thanks to the flexibility and global reach of its supply chain, an advantage compared to more locally concentrated competitors. However, other major sourcing countries such as Bangladesh (37% tariff), Cambodia (49%), and Vietnam (46%) are also facing steep tariff increases, making it clear that H&M will not be liberated from the broader impact. That said, all major competitors are in a similar position, and the burden of these tariffs is likely to be felt by consumers through pricing adjustments. However, in our view, the scale of these new tariffs will be difficult for H&M to fully pass on to customers, which increases the risk of further margin pressure.