News about tariffs is inescapable this week as concerns about retail spending mount. In the marketing world, there are significant worries tariffs will take a bite out of advertising budgets.
Before today, predictions for U.S. retail spending in 2025 were generally aligned around mid-single-digit growth despite the impact of tariffs.
This week, the National Retail Federation (NRF) forecast that 2025 retail sales will grow between 2.7% and 3.7% over 2024 to between $5.42 trillion and $5.48 trillion.
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The 2025 sales forecast compares with a 3.6% annual sales growth of $5.29 trillion in 2024. The NRF says this year’s forecast aligns with the 10-year pre-pandemic average yearly sales growth of 3.6%.
“It’s the hard data on employment, income and tariff-induced inflation — not consumer sentiment — that supports our view of a slower trajectory for consumer spending,” NRF Chief Economist Jack Kleinhenz said in a statement announcing the projections.
Deloitte’s “2025 US Retail Industry Outlook” made a similar prediction. Deloitte’s economist, Akrur Barua, projects consumer spending will grow by 3.1% in 2025. The report also says spending growth on durable goods should remain high at 4.7% in 2025.
Much like the NRF, Deloitte’s outlook also mentions tariffs. It specifically states that a sharp hike in tariffs could lead to a broader economic slowdown and potentially contract consumer spending and GDP in 2026, which would, as you might imagine, negatively impact retail sales.
Speaking of tariffs, let’s clarify how they work. The company importing the goods pays the tariff, not the country from which the goods originated. It’s an additional cost for the company, usually passed on to the consumer. Like any increased cost, tariffs pinch margins.
Advertising budgets are always on the chopping block
When margins are tight, advertising is often among the first things businesses cut as they try to balance spending money and encouraging sales.
Marketers know this, as seen in last month’s IAB data, which said 94% of advertisers were concerned tariffs would reduce their advertising budgets.
Sixty percent of those surveyed by IAB expected their ad budgets to drop 6%-10%. Traditional media and social media advertising are expected to face the largest budget reductions, according to the survey, while CTV and online video may be more resilient.
Advertising and retail spending are all connected. It’s a powerful flywheel that drives much of the U.S. economy. The advertising is used to sell goods and services. But consumers, of course, need income – and in some cases disposable income — to buy those goods and services.
Dig deeper: 94% of advertisers concerned tariffs will lead to cut in ad spending: IAB
What does recent history say about tariffs, retail spending and ad spend?
Over the past 25 years, there have been three major tariff episodes. In 2002, tariffs were placed on steel mill products from non-NAFTA countries, tires from China in 2009 and a trade war with China that lasted from 2018 to 2020.
We will put aside the 2009 tire tariffs because it is a very narrow example.
Steel tariffs of 2002–2023
The tariffs caused U.S. steel prices to increase by about 30%, which led to higher prices for cars, appliances and other steel-made equipment. It’s estimated about $75 billion in additional costs were passed on to consumers.
Steel-using firms trimmed discretionary spending, cutting marketing and hiring in particular. U.S. ad spending was already very low in 2002 as the country was recovering from a recession. Automakers did increase ad spending with incentives designed to spur demand, not as a sign of health. Overall, ad spending was down in the B2B and durable goods sectors as an atmosphere of caution prevailed.
U.S.-China trade war, 2018–2020
Multiple rounds of tariffs occurred from 2018 to 2020, including a 25% tariff on $250 billion worth of Chinese imports, lower tariffs (7.5%-15%) on $110 billion more and global steel and aluminum tariffs.
Consumer categories with heavy tariffs saw price increases of 1.7%-7%, retail spending growth slowed and the annual cost per U.S. household in 2019 was estimated at $400–$500.
Auto ad spending fell 7%, and retail ads dropped by 5%. However, this was also a time when advertisers started to look more closely at performance-based campaigns, leading to cuts in broad brand campaigns in favor of strategies that allowed for optimization.
What impact will tariffs have on retail and advertising in 2025?
The most significant difference between these earlier episodes and 2025 is the breadth of the tariffs (as of this writing). There are some other points of concern as well:
- Inflation: Given the recent inflationary environment, consumers are especially sensitive to price increases.
- Tight labor market: Low unemployment is good for supporting spending, but it’s bad for companies that need agility to make supply chain changes, for example, to avoid tariffs. They need people to execute those plans.
- Geo-political tensions: There’s a lot of it, with the Russia-Ukraine conflict still front and center.
Dig deeper: How smarter measurement can fix marketing’s performance trap
Advice for marketers worried about the impact of tariffs
What does all this mean for marketers?
You have data, use it
Your martech stack and the platforms on which you advertise are feeding you plenty of data. If you clean it up and analyze it, it will provide some clues to help you weather the storm.
Companies that maintain a brand presence and fight the temptation to go completely dark recover faster from these disruptions. Find the channels delivering the best ROI and focus your efforts there. If your data says you’ve got your ICP right and those channels are effective, that might mean investing in more targeted channels.
Watch consumer sentiment and adjust your message
Trade tensions often lead to a drop in consumer confidence. When consumers are stressed, there’s a temptation to discount, but that’s challenging when the tariffs raise costs.
Instead, consider value-added promotions like bundles and lean into loyalty points and discounts.
Keep a close eye on opportunities
To this point, the tariff news had been a bit unpredictable. Opportunities will potentially present themselves in two ways:
- Government mitigation: Certain industries that are struggling might get help from the government to ease the pain.
- Tariff changes: Exemptions for specific countries and/or goods might present opportunities to improve margins and pass deals to your customers.
That all being said, this is uncharted territory for just about everyone. Hold on to your hats.
The post How tariffs impact retail sales and ad spending, and why 2025 might be different appeared first on MarTech.
**The Effects of Tariffs on Retail Sales and Advertising Expenditures, and What Could Change in 2025**
Tariffs—government-imposed duties on imported goods—have long been used as tools of trade policy, often aimed at protecting domestic industries or retaliating against unfair trade practices. However, their ripple effects can extend far beyond international trade, influencing consumer behavior, business strategies, and even marketing budgets. In the retail sector, tariffs can significantly impact both sales performance and advertising expenditures. As we approach 2025, potential shifts in trade policy, economic conditions, and consumer sentiment could reshape these dynamics.
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### How Tariffs Affect Retail Sales
1. **Increased Costs for Retailers and Consumers**
Tariffs on imported goods raise the cost of those goods for retailers, who often pass on the increased costs to consumers. This can lead to higher retail prices, especially in sectors heavily reliant on imports such as electronics, apparel, and home goods. As prices rise, consumer demand may decline, particularly for non-essential or luxury items, leading to a slowdown in retail sales.
2. **Supply Chain Disruptions**
Tariffs can also disrupt global supply chains, forcing retailers to seek alternative suppliers or shift production to different countries. These adjustments often come with additional costs and delays, which can further strain inventory levels and reduce product availability, negatively affecting sales.
3. **Changes in Consumer Preferences**
When tariffs lead to higher prices or reduced product variety, consumers may shift their preferences toward domestic alternatives or lower-cost substitutes. This shift can benefit some local retailers while hurting others that rely on imported goods.
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### Impact on Advertising Expenditures
1. **Budget Reallocations**
When faced with declining sales or rising operational costs due to tariffs, many retailers reallocate their budgets, often cutting back on discretionary spending such as advertising. Marketing departments may be forced to do more with less, focusing on cost-effective digital campaigns over traditional media.
2. **Strategic Messaging Shifts**
Tariffs may also prompt changes in advertising content. Retailers might emphasize value, durability, or domestic sourcing in their messaging to appeal to cost-conscious or patriotic consumers. Brands may also use advertising to explain price increases or promote tariff-free product lines.
3. **Short-Term vs. Long-Term Planning**
Uncertainty around trade policy can lead to short-term advertising strategies, as retailers hesitate to commit to long-term campaigns. This reactive approach can limit brand-building efforts and reduce the overall effectiveness of marketing investments.
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### What Could Change in 2025
As we look ahead to 2025, several factors could alter the relationship between tariffs, retail sales, and advertising expenditures:
1. **Potential Trade Policy Revisions**
With a new U.S. presidential term beginning in 2025, trade policy could undergo significant changes. A new administration might renegotiate existing tariffs, lift certain duties, or impose new ones, depending on its economic and geopolitical priorities. Easing tariffs could lower costs for retailers and consumers, potentially boosting sales and freeing up funds for marketing.
2. **Global Economic Recovery**
If global supply chains stabilize and inflationary pressures ease, retailers may see improved margins and consumer confidence. This could lead to increased sales and a resurgence in advertising spending, particularly in competitive markets.
3. **Technological Advancements in Advertising**
Advancements in AI-driven marketing and data analytics may allow retailers to achieve greater ROI from smaller advertising budgets. Even if tariffs remain in place, more efficient targeting and personalization could help retailers maintain or grow market share without significantly increasing ad spend.
4. **Consumer Behavior Trends**
Sustainability, domestic sourcing, and ethical consumption are becoming more important to consumers. Retailers that align their product offerings and advertising with these values—especially in a tariff-affected environment—may gain a competitive edge.
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### Conclusion
Tariffs have a complex and multifaceted impact on the retail sector, influencing everything from pricing and supply chains to consumer behavior and advertising strategies. While tariffs can dampen retail sales and constrain marketing budgets, they also present opportunities for innovation and strategic repositioning. As 2025 approaches, changes in trade policy, economic conditions, and consumer expectations will likely reshape the landscape. Retailers that remain agile and responsive to these shifts will be best positioned to thrive in a potentially transformed marketplace.
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