‘There’s only so much you can absorb from the tariffs, because they’re just very high’: Levi’s CEO states the plain truth

The gravity of the business landscape cannot be overstated, McKinsey and the Business of Fashion executives say in the 2026 edition of McKinsey and the Business of Fashion. Fashion state a report. US tariffs on apparel and footwear imports, which were about 13% earlier in 2025, rose sharply to 54% after initial government announcements in April. Although rates later eased, the weighted average tariff rate on apparel and footwear from the 10 largest importers was 36% as of mid-October, well above historical norms. This sudden rise places the apparel and footwear industry among the industries most vulnerable to the profound effects of tariffs. In light of this critical situation, 76% of fashion executives surveyed believe that responses to trade disruptions and tariffs will be the most important factor shaping the industry in 2026.

Marking the 10th anniversary of the report, which began in 2016, McKinsey and the Business of Fashion chart the many changes that have occurred in the industry since 2016, from a generalized “age of volatility” to the undeniable rise of Asia to disruptions in how shoppers shop. For 2026, they map out key issues, including “tariff disruption” and three emerging appetites for shoppers: a focus on resale, a sense of “luxury” in their purchases, and a future characterized by artificial intelligence.

The report finds that brands are making price changes, shifting sourcing, and improving efficiency in an attempt to counter the impact of tariffs. Large suppliers are responding by improving their footprints as they pursue digitization and automation, and at the same time, smaller players are under increasing pressure. “Flexibility will be the critical factor that enables brands and suppliers to remain competitive.” Amid this economic turmoil, Levi Strauss CEO Michelle Gass spoke to Business of Fashion’s Joan Kennedy about how her adoption of aggressive and systematic tariff rules has positioned the 170-year-old denim giant as a standout in managing the chaos.

Levy’s feature, the painful truth

Critically, Levi entered this period with a structural advantage: approximately 60% of its business was international, which reduced its tariff burden compared to many domestic competitors with greater penetration in the United States. However, even with this advantage, increasing tariffs required strategic action. Describing the overall environment as “extremely complex,” including macroeconomic forces, geopolitical issues, and massive disruption in technology and artificial intelligence, Gass explained the necessary and inescapable reality of passing some costs on to the consumer, stating plainly: “There is only so much you can absorb from tariffs, because they are so high.”

Levy’s approach to pricing is multifaceted: First, it is implementing targeted and surgical pricing increases, a measure also being taken by most apparel retailers (55% of executives expect further price increases in 2026 in response to tariffs). Second, the company uses promotional tools, specifically holding back discounts such as “20% off” events, which helps raise the profile of the brand and mitigate the impact of tariffs by improving margins. Third, the company prices innovation, capitalizing on new products where consumers are likely to be “willing to pay more.”

Levi did not respond luckRequest to comment on more details about upcoming price increases.

Beyond pricing, Levi’s has prioritized internal operational prowess. Gass, who takes over as CEO in 2024, has been leading a course correction focused on transformation, simplifying the business and reducing unwieldy inventory. Tactical moves included cutting slower-selling SKUs. Most importantly, the company is undergoing a fundamental “revamp” to reduce complexity across its 120-country network. By increasing product commonality across all global stores from less than 10% to approximately 40%, Levi’s is generating efficiencies across design, sourcing and merchandising. As Gass summed up this strategy: “We operate in a complex environment, but we are becoming less complex ourselves.”

This disciplined approach has achieved results. Levi’s reported a 7% year-over-year increase in quarterly sales in October 2025, marking its fourth consecutive quarter of high single-digit growth. The company also raised its full-year revenue forecast, even as it warned that tariffs would impact margins in the fourth quarter.

The industry overall is adapting to the new trade map, with 35% of executives planning to shift sourcing to markets that have more favorable trade agreements. However, Levi’s emphasizes that in a volatile business environment, resilience relies heavily on strategic supplier partnerships built on collaboration. Gass noted that Levi’s teams talk to vendors 24/7, treating it as a “relationship business” where sourcing from multiple countries provides critical resilience against tariffs and supply chain disruptions.