Across very different models, retailers are reconfiguring sourcing, freight and channel economics to neutralise rising tariff costs rather than pass them straight to the margin line.
In Brief
- Shared pattern: tariff exposure is being managed as a design constraint in sourcing, inventory and channel mix, not treated as an external shock that simply erodes margin.
- Configuration: companies are leaning on domestic or tariff-light sourcing, opportunistic buying, price architecture and contractual resets to absorb cost while preserving availability.
- Constraint: every mitigation choice tightens flexibility elsewhere, from higher freight intensity and store labour to narrower supplier bases or dependence on marketplaces.
The Underlying Pattern and Stakes
Tariffs have shifted from episodic policy risk to a structural feature of global retail supply chains. The responses in recent disclosures show a common pattern: operational models are being tuned so that tariff costs are soaked up through sourcing decisions, freight routing and pricing architecture rather than allowed to dictate strategy.
The result is not a single tactic but a family of moves. Bath & Body Works is baking new tariffs into gross margin guidance then planning to neutralise them through product cost actions and fulfilment redesign. ThredUp has largely stepped out of the tariff line of fire by building a U.S‑sourced consignment network. TJX treats tariff volatility as one more variable in opportunistic buying. The shared thread is that tariff impact is being managed inside the operating model, not left as an uncontrollable drag on earnings.
How Companies Are Converging
One clear point of convergence is deliberate use of domestic or tariff-light sourcing as a buffer. ThredUp’s choice to have supply that is ‘wholly on consignment and U.S. sourced’ meant that during ‘large tariff disruptions of 2025’ it saw ‘little impact’. That is a structural stance: a network designed around domestic intake and consignment partners, so import duties do not feature in unit economics. Bath & Body Works does import, but is pushing more formulation and packaging work into a fast domestic supply chain that can restage hero SKUs and chase demand without heavy exposure to long, tariff-affected lanes.
Another shared move is using buying power and mix to offset tariff costs. TJX expects to ‘offset the tariff pressure’ in its guidance and goes further, suggesting that when ‘there’s confusion with the whole tariff thing’ its buyers often ‘figure out a way to benefit in terms of a merchandise margin situation’. That reflects a non‑commitment model and a universe of roughly 21,000 vendors: when duties reconfigure landed cost, TJX can switch origin, change category mix or renegotiate terms at scale. Bath & Body Works describes something similar in a more traditional branded context: its 2026 gross profit guide assumes about 130 basis points of pressure from tariffs and product investments, yet it expects tariff levels to be ‘roughly flat to earnings’ year over year because Fuel for Growth savings and buying actions will cover the gap.
Pricing architecture sits alongside sourcing as a shared lever. Fossil talks about targeted price increases and a higher mix of ‘higher-margin traditional watch sales’ as part of how it ‘mitigate[d] expected tariff headwinds in the quarter’ while still guiding to mid‑50 percent gross margins. Bath & Body Works is protecting innovation SKUs from aggressive discounting so that new forms and formulations can carry more of the cost load. TJX manages to hold a visible ‘value gap’ versus competition but allows ticket lift to come through mix into ‘better goods at higher prices’, which helps absorb changes in landed cost without diluting its off‑price promise.
Channel and partner structures are being used to reposition freight and tariff exposure. Bath & Body Works’ launch of a curated wholesale assortment on Amazon shifts some cross‑border complexity and last‑mile cost into a marketplace model, while still expecting around 50 million dollars of incremental sales from expanded distribution. ThredUp’s consignment contracts push inventory ownership and import decisions upstream to sellers and brand partners under Resell‑as‑a‑Service, insulating its own profit and loss from duty changes. Fossil is moving multiple European markets to distributor‑led models, effectively outsourcing local logistics and certain duty and compliance burdens while retaining design and sourcing control.
Operating Model Mechanics
At the sourcing level, tariff mitigation shows up first as origin, vendor and contract choices. TJX’s vendor base and lack of forward buying commitments mean that as tariff tables change, its 1,400 buyers can wait for the most attractive post‑tariff deals, skewing open‑to‑buy to regions and product types with favourable duty and freight combinations. Bath & Body Works is not as flexible on origin but is using product engineering to control duty exposure: restaging core body wash and hand soap forms in the back half of 2026 involves retooling packaging and formulations, which can be aligned with tariff classifications and supplier locations that minimise landed cost over time.
Inventory design is the next layer. Bath & Body Works is targeting a 5 percent reduction in year‑end inventory while stressing that positions are ‘clean’ headed into spring, which reduces the risk that tariff‑inflated goods need to be cleared at a loss. Kohl’s, facing a value‑sensitive customer, plans to increase depth ‘in the high single digits’ on key items while cutting choice counts and keeping total inventory down low to mid single digits. For both, shallower, better‑timed seasonal buys make room to adjust orders as tariff news lands rather than being locked into over‑depth commitments made a year in advance.
Freight and fulfilment choices are also being reworked. Bath & Body Works exited a third‑party fulfilment centre in early 2025, gaining buying and occupancy leverage that partially offset a 100 basis point gross margin drag from tariffs in the fourth quarter. At the same time it lowered its free‑shipping threshold from 100 to 50 dollars, increasing small‑parcel exposure. That only works if upstream logistics are efficient enough that tariff‑inclusive landed costs plus higher shipping intensity still fit inside a 42 percent gross profit guide. Kohl’s closed one e‑commerce fulfilment centre to simplify its network, but is simultaneously leaning into ship‑from‑store, buy online pick up in store and buy online ship to store. Higher in‑store depth and better allocation are meant to reduce split shipments and unnecessary line‑haul moves, keeping transport spend in check even as digital penetration reached 35 percent of fourth‑quarter sales.
Contract mechanics matter as well. Fossil’s renegotiation of license royalties, which have behaved like a minimum toll on imported product, is explicitly framed as a way to ‘materially reduce’ third‑quarter royalty shortfalls in 2026. While royalties are not tariffs, they have similar characteristics in the income statement: a per‑unit cost largely outside operational control. Resetting those contracts in tandem with supplier negotiations on cost price helps Fossil hold a mid‑50 percent margin despite a fluid tariff environment. Bath & Body Works is doing something similar, though less visibly, through its 250 million dollar Fuel for Growth programme; about half of those savings are expected to flow through gross margin, effectively creating a buffer for product cost inflation and duty.
When disclosures are thin on detail, this kind of configuration typically requires a few practical underpinnings:
- Planning processes that carry tariff and duty status as explicit attributes in sourcing, costing and allocation decisions, rather than as finance‑only variables.
- Open‑to‑buy and scenario planning that can be reset quickly as tariff rulings land, with alternative suppliers and origins pre‑qualified.
- Freight contracts that allow some mix of modes and carriers to be shifted without punitive penalties when tariffs and fuel costs interact in unexpected ways.
Risk, Constraints and Trade-offs
The first trade‑off is between tariff relief and network complexity. ThredUp’s choice to be U.S‑only and consignment‑based eliminates tariff lines but concentrates operations in domestic facilities, raising the stakes on automation and capacity planning. Processing over 21 million items in 2025 with 17 percent volume growth and gross margins near 79 percent shows what that can look like when it works. The model is, however, heavily fixed‑cost: operations and technology are roughly 60 percent fixed and selling, general and administrative expense around 97 percent fixed. Any slowdown in volume would flow quickly to margin.
Bath & Body Works sits on the other side of that trade‑off. Its international partner network is approaching a billion dollars in retail sales and is expected to grow mid to high single digits, giving geographic diversification but exposing it to more customs processes, tariffs and local compliance. Mitigating tariff impact here comes partly from scale and partly from simplification: a 10 percent SKU reduction, exit from a third‑party fulfilment centre and logistics upgrades funded by 270 million dollars of 2026 capital expenditure are intended to keep complexity manageable even as routes and duty rates vary by market.
Another constraint lies in the balance between value perception and margin. Kohl’s is explicit that its core shopper is under financial pressure and is doubling down on under‑10 dollar price points, expanded coupon coverage and proprietary opening price brands. That is a commitment to retail price ceilings. Tariff mitigation, in this context, cannot simply be a pass‑through; it has to come from sourcing improvement and cost take‑out. The company points to multi‑year gross margin expansion, reaching 37.5 percent in 2025, and strong working capital control, but its own guidance acknowledges that higher digital mix and promotional intensity will leave gross margin flat to slightly down in 2026 even as selling, general and administrative expense is trimmed.
TJX illustrates a different tension: opportunistic buying of glutted, tariff‑affected stock can deliver strong merchandise margins, but only if the network can move that inventory without building excess. Year‑end inventory was up 14 percent overall and 10 percent per store, yet cash flow remained robust at 6.9 billion dollars of operating cash and margins climbed. That reflects very high turns and global reach. The risk is that such a model depends on ongoing excess in supplier networks and continuous store productivity; if either weakens, inventory build‑up could quickly eat into the margin cushion that currently offsets tariff volatility.
There is also a temporal trade‑off. Bath & Body Works notes that tariffs did not affect first‑quarter 2025 but will create a 150 basis point headwind to gross margin in the first quarter of 2026, with neutrality expected only over the full year. In other words, mitigation measures often lag the introduction of tariffs. That lag shows up as quarter‑to‑quarter noise in margin and complicates planning: capacity, inventory and promotional calendars need to be set before tariff details are always clear.
Operational Self-check
A few questions expose whether tariff mitigation is genuinely embedded in the operating model or being managed as an after‑the‑fact finance problem:
- Are duty and tariff treatments visible as decision variables in sourcing and allocation systems, or only reflected later in landed cost reports?
- Can open‑to‑buy and supplier commitments be shifted quickly when tariff rulings change mid‑season, without triggering major availability gaps or stranded stock?
- Is there a clear view of which channels, price points and product forms are structurally able to carry more landed cost, versus those where any cost increase must be offset upstream?
What This Pattern Signals
Seen together, these companies point to a structural shift: tariffs are being treated as one more design parameter in network and sourcing configuration rather than as an exogenous shock. Models that minimise exposure altogether, as with U.S‑sourced consignment, sit alongside models that use scale, buying flexibility and engineered pricing to neutralise costs that cannot be avoided.
If this pattern persists, network design will skew further toward flexible origin options, domestic capacity that can absorb demand swings without import lead times, and contracts that push some tariff risk upstream to partners or spread it across broader assortments and channels. Freight networks will keep tilting to store‑enabled fulfilment and carefully chosen wholesale and marketplace nodes that balance duty exposure with reach.
This looks less like a temporary response and more like a recalibration of how retail supply chains are built. Tariff regimes may change, but the operating logic of designing sourcing, inventory and freight systems that can digest those changes without frequent strategic rewrites is likely to remain.
This article is based on recent earnings reports and public disclosures from the companies referenced.
