Tariff Impact Hits Retail: Carter's Shuts 150 Stores, Reduces Staff by 15%

The children's apparel chain

Inc. (CRI) is implementing a significant overhaul, which involves shutting down 150 stores and cutting 15% of its corporate staff. This move comes as the company faces financial challenges from increased tariffs and changes in its sourcing approach, according to a . Carter's, which operates more than 1,000 locations throughout North America, intends to close these stores during fiscal years 2025 and 2026, with about 100 closures projected by 2026. The stores affected currently generate roughly $110 million in yearly net sales, as reported by .

This restructuring is part of Carter's response to tariffs introduced during Donald Trump's presidency, prompting a shift in its sourcing model. For fiscal 2025, the company will obtain 75% of its merchandise from countries such as Vietnam, Cambodia, Bangladesh, and India, reducing China's share to under 3%, according to the Yahoo Finance report. CFO Richard Westenberger mentioned during the

that tariff rates have surged to the "high 30% range," a significant jump from the historical 13%, resulting in an estimated annual gross margin impact of $200 million to $250 million.

For the third quarter, Carter's saw its adjusted operating income drop sharply to $39 million from $77 million a year earlier, according to a

. The company attributed this decline to higher product costs, increased tariffs, and investments in both product quality and store improvements. CEO Douglas Palladini highlighted that, despite positive comparable sales in the U.S. retail segment, "higher product costs...had a significant negative effect on our profitability," as reported by Syracuse.com. The company also decided to withdraw its fiscal 2025 outlook due to "persistent and considerable uncertainty regarding tariffs," as noted in a .

The restructuring is projected to deliver $35 million in annual savings starting in 2026, with total gross savings of $45 million expected from cost-cutting and organizational adjustments, according to the GuruFocus article. These steps include closing underperforming stores as leases expire and eliminating 300 office positions. Carter's also plans to reduce its product assortment by 20-30% and pause new store launches under its current business model, according to a

.

The market response to these announcements was mixed. Carter's shares dropped 14.5% after the news, even though the company slightly exceeded earnings expectations with $0.74 per share, as previously reported by Yahoo Finance. Nevertheless, UBS raised its price target for

to $33 from $26, citing better protection of gross margins and a solid cash position of $184 million, according to an . Analysts observed that while Carter's efforts to offset tariffs—such as raising prices and diversifying suppliers—have had some positive effects, the overall retail landscape remains difficult.

Carter's is not the only company dealing with tariff-related challenges. The children's clothing industry is experiencing increased competition and evolving consumer behavior, especially as e-commerce giants like Amazon take a larger share of the market, the Yahoo Finance story noted. Carter's Simple Joys line, which previously performed well on Amazon, has seen a drop in wholesale sales due to changes in Amazon's brand management policies, according to the GuruFocus article.

With U.S.-China trade talks still uncertain, Carter's is keeping a close eye on potential tariff changes. Westenberger said the company is "monitoring developments as they happen" and would attempt to recover "substantial amounts already paid" if tariffs are reduced, as stated in the Q3 earnings call transcript. For now, Carter's is prioritizing operational efficiency and profitability amid a challenging cost environment.