Unresolved U.S. tariff policy keeps outlook for the global retail and apparel sector at negative, said credit ratings firm Moody’s Ratings.

“U.S. companies in the segment still face higher costs even at current tariff levels, with apparel and footwear, big-box and department stores struggling most,” said credit analysts at Moody’s in a report last week.

The credit analysts also kept their revenue growth projection for the next 12 months in the 0-3 percent range, reflecting weak unit demand offsetting increased pricing to defray higher costs.

“The effect of tariffs will drag materially on earnings through at least the first half of 2026, since companies will have limited ability to raise prices without hurting demand,” the analysts concluded, noting that affordability remains particularly critical for middle- and lower-income consumers. “The costs of implemented tariffs will begin to hurt retailers’ profitability once companies sell through any inventory that they purchased earlier in 2025,” they also said.

While the largest retail and apparel firms can absorb the higher costs from tariffs, even they may face higher near-term costs as they try to restructure supply chains or re-engineer products to use inputs more cost effectively.

U.S. and apparel firms, and department stores, are the most likely to struggle with further tariff hikes due to reciprocal tariffs on many Asian countries, which are key sources of supply. Moody’s also cited Nike and Under Armour as firms impacted by their heavy concentration in technical apparel and footwear that is difficult to move out of Asian manufacturing hubs. In addition, “heavy promotional activity in some of their assortment makes it harder to raise prices,” the report said.

The credit analysts also said they expect Walmart to outperform, as its scale and significant exposure to grocery has relatively low tariff exposure helped by the discounter’s negotiating leverage with vendors coupled with its supply-chain expertise. In contrast, they expect Target’s operating performance will be weak, due in part to the mass discounter’s higher mix of discretionary general merchandise mix.

Separately, the Conference Board‘s Consumer Confidence Index in July rose 2 points to 97.2 from a revised 95.2 in June. The Present Situation Index slipped 1.5 points to 131.5, while the Expectations component rose 4.5 points to 74.4 —although that level is below the threshold of 80, which typically signals a recession ahead for the sixth consecutive month.

One data point to note is that the consumer appraisal of current job availability has weakened for the seventh consecutive month, reaching its lowest level since March 2021, said Stephanie Guichard, senior economist, global indicators at the Conference Board.

“Consumers’ write-in responses showed that tariffs remained top of mind and were mostly associated with concerns that they would lead to higher prices,” Guichard said.