56% of fashion executives cite supply chain disruption as top challenge

Supply chain disruption has overtaken every other operational challenge for fashion companies in 2026. According to a report by Deloitte, 56% of fashion executives cited supply chain disruptions as their top challenge, a figure that underscores how geopolitical conflict, climate shocks and tariff volatility have reshaped the industry's risk landscape. The finding emerges from Deloitte's 2026 Global Retail Industry Outlook, which surveyed 330 global retail executives and confirms what many chief operating officers already feel: the era of reliable, low-cost global supply chains has ended.

Forty percent of leaders cite trade disruptions as one of their top three risks, up 25 percentage points from last year, driven largely by new tariffs that are reshaping supply chains and raising input costs. 95% of surveyed retail executives expect global trade policies to push costs higher, forcing companies to move beyond incremental adjustments and rethink supply chain design from end to end.

The shift is structural, not cyclical. McKinsey & Company's State of Fashion 2026 report finds that tariffs and geopolitical instability have become the largest operational risks of the industry, with brands moving away from chasing the lowest-cost production model and instead building supply chains that are more flexible, localised and better equipped to handle disruption. For an industry that spent decades optimising for speed and price, this represents a fundamental recalibration.

What is driving the 2026 supply chain crisis?

Three overlapping forces are compressing margins and constraining operations: tariffs, geopolitical conflict and climate-related shipping disruptions. Each operates on a different timescale, but all three converge in 2026 to create what executives describe as a polycrisis.

A striking 76% of fashion executives surveyed identify trade disruptions and tariffs as a key factor that will influence the industry in the year ahead. 92% of respondents in the USFIA Fashion Benchmarking Study 2026 said protectionist trade policies and related policy uncertainty, including the impact of tariffs, was one of their two most pressing business challenges this year, followed by inflation and US economic outlook.

The tariff environment is both severe and unpredictable. The average effective US tariff rate reached 13.7% in February 2026, the highest level in decades, while around 71% of fashion executives are planning to increase their prices in the next year, according to McKinsey.

Geopolitical risk has moved from abstract scenario planning to operational reality. The US-Iran war was identified as one of the top geopolitical risks that could disrupt companies' apparel supply chains this year. Factory closures in Bangladesh were caused by a combination of global and domestic factors, including the COVID-19 pandemic, the Russia-Ukraine war, Israel's attack on Palestine and the related conflict in the Middle East, the war between the United States and Iran, the global recession, political instability in Bangladesh, and a liquidity crisis in the banking sector, according to Bangladesh's Commerce Minister.

Climate and security-driven shipping disruptions add a third layer of complexity. The Red Sea shipping disruption continues to reshape global maritime logistics in 2026, and in 2026, early signs of a partial carrier return to traditional routes are emerging, but confidence among shipping lines, insurers, and shippers remains cautious. The violence slashed Red Sea traffic by roughly 60%, forcing carriers to reroute around the Cape of Good Hope, adding 10 to 14 extra sailing days and upending schedules across every major East-West trade lane.

How much are tariffs and freight raising costs?

The financial impact is measurable and immediate. 45% of fashion executives say sourcing costs are pressured the most under their economic model, followed by pricing and inventory management, according to McKinsey's State of Fashion 2026 report.

The US apparel price index has climbed significantly in the first half of 2026, with tariffs on imported textiles and garments adding an estimated 15 to 20% to wholesale costs, according to Cotton Incorporated. The average retail price of a cotton T-shirt has risen from $15.50 in early 2025 to $18.75 by June 2026, a 21% increase.

Freight costs compound the tariff burden. Tariff-driven effects, including front-loading surges, carrier rate spikes, increased brokerage complexity, and higher warehousing costs, typically add 15 to 30% more to total landed cost on top of the duty itself; a product with a 35% effective tariff rate may see 45 to 55% total cost increase once logistics impacts are included, according to freight cost analysis.

Not all companies can pass these costs to consumers. American Eagle projects it will incur $70 million in tariff costs during the last half of the current fiscal year ending in late January 2026; without the mitigation actions, the costs would have been $180 million, CFO Mike Mathias said in a September earnings call. The retailer expects to reduce the tariff impact by more than 60% through price increases, supplier negotiations, transport optimisation and sourcing shifts.

Where are factories closing and why?

The cost pressures are forcing suppliers, particularly in Bangladesh, to shutter operations. At least 402 ready-made garment factories were closed between July 2023 and June 2026, of which 282 were members of the Bangladesh Garment Manufacturers and Exporters Association (BGMEA), while 120 were members of the Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA), Commerce Minister Khandakar Abdul Muktadir told parliament.

151 factories from the garment and textile sector permanently shut down between August 2024 and June 2026, of which 108 were BGMEA members, while 35 belonged to BKMEA, according to data compiled from industrial intelligence. Industry stakeholders attributed the closures to prolonged shortages of export orders, rising production costs, increasing raw material prices, and persistent uncertainty in global markets.

The human cost is significant. 529 garment factories suspended operations in early November 2026, and nearly 987,200 workers have been affected by the shutdowns, according to reports of labour protests that forced Bangladesh to establish a wage review board.

Which companies are restructuring their supply chains?

66% of retail respondents plan to restructure their supply chains through onshoring, nearshoring, and diversifying their supplier base if input costs rise in 2026, according to Deloitte's survey of 330 global retail executives.

Nike announced a major shift in October 2026. Nike Inc announced strategic moves to revamp its supply chain to boost profitability following a fiscal first-quarter marked by profit gains driven mainly by cost efficiencies rather than sales growth; the company's COO revealed intentions to shift from owning distribution networks toward a more flexible and efficient supply chain, including potential nearshoring for North America and EMEA markets.

COO Venky Alagirisamy said during a meeting with employees on October 2 that Nike wants to make its supply chain more flexible, more responsive and more efficient; this includes shifting away from owning a large part of our fulfillment and distribution network; the company is also looking at more nearshore sourcing for North America and the region that includes Europe, Africa and the Middle East, and there are very aggressive plans to make that happen.

Abercrombie & Fitch has pursued a dual strategy. The company continues to evaluate the impact of tariffs and other trade policies on its business and is executing against a playbook of mitigation strategies, which includes evaluating supply chain footprint changes, supply chain vendor negotiations, pursuing operating expense reductions, and determining ways to increase average unit retail, according to the company's August 2026 10-Q filing.

In April 2026, Abercrombie & Fitch unveiled the AutoStore automated fulfillment solution in its newest distribution center in Columbus, Ohio, in partnership with Bleckmann; EVP of Supply Chain Larry Grischow noted that in 2025, A&F Co. delivered record net sales, surpassing $5 billion in annual revenue for the first time, and the newest distribution center will support growth across North America and enable the company to better meet customers' evolving needs by picking orders faster, shipping sooner and expanding capacity while improving efficiency.

H&M utilised a geographically diverse sourcing base; as of February 2026, H&M sourced apparel from nearly 800 factories across 23 countries and about 550 factories producing textile raw materials in 15 countries, according to analysis of the company's sourcing disclosures.

How are brands using AI and technology to mitigate risk?

Artificial intelligence is moving from pilot to production across supply chain operations. More than 35 percent of fashion and luxury executives are already deploying AI in key operational areas, according to McKinsey's State of Fashion report.

To manage rising fulfillment and logistics costs, 3 in 10 retailers surveyed use AI for supply chain visibility, and this number is expected to rise to 41% in the next year, according to Deloitte's 2026 Retail Outlook.

The use cases span the value chain. AI improves supply chain visibility by analyzing production timelines, vendor performance, lead times, logistics delays, and material availability; it identifies bottlenecks, predicts disruptions, and suggests optimal production schedules.

Regulatory pressure is accelerating adoption. Fashion businesses including ASOS, Gap and others are adopting AI-powered supply chain tools as regulatory pressure around transparency increases; the Digital Product Passport Registry went live in July 2026, moving the concept another step from policy toward operating infrastructure.

Otrium's co-founder Milan Daniels noted that the implementation of robotics and AI in their warehouse reduced the workforce by seventy percent and delivered enormous efficiency gains, bringing the company closer to profitability.

What are the limits and risks of current mitigation strategies?

Nearshoring and diversification come with significant costs and limitations. The policy of higher tariffs does not translate into reshoring of production; only 10 percent of respondents identified sourcing more Made in the USA products as a tariff response strategy, according to the USFIA 2026 Benchmarking Study.

In placements across 2024 to 2025, fewer than 8% of brands could justify true reshoring math, according to industry sourcing data. The economics remain challenging for most categories.

Price increases face consumer resistance. Selective price increases are likely in 2026, but blanket price hikes will not work anymore for fashion brands, as consumers are too informed and value-driven; brands need to clearly tie any increase to something tangible: better quality, stronger materials, improved sourcing or a better overall experience, according to Keith Fraley, assistant professor of fashion business at the Fashion Institute of Technology.

Supplier diversification introduces new complexities. 46% of respondents in the BoF-McKinsey State of Fashion 2026 Executive Survey said they expect industry conditions to worsen in 2026, up from 39% the year prior. Brands that moved production in 2025 are discovering that new suppliers may lack the scale, quality systems or compliance infrastructure of established partners.

70% of digital supply chain initiatives fail to scale because of integration challenges, leaving brands stuck at the pilot phase while risks remain hidden, according to supply chain technology analysis. AI and automation require clean data, interoperable systems and change management capabilities that many fashion companies still lack.

Is this disruption temporary or structural?

The evidence points to a structural shift rather than a cyclical downturn. The fashion supply chain in 2026 is no longer defined solely by speed and cost, but by its resilience, precision, and adherence to escalating regulatory standards; the prevailing operational reality is one of volatility, driven by geopolitical turbulence, trade tariffs, and climate-related shocks; executives cite responses to trade disruptions and rising tariffs as the single most significant theme shaping the industry in the year ahead.

Red Sea risks are expected to remain a market factor through 2026, indicating a structural rather than temporary challenge; supply chain professionals should plan for ongoing disruption risk rather than treating this as a cyclical event that will self-resolve, according to logistics intelligence analysis.

The macroeconomic backdrop reinforces the structural view. The Deloitte report on Canadian supply chains cites a 38 per cent increase in global disruptions and more than 70 labour-related disruptions affecting Canada since 2022. The frequency and severity of shocks are increasing, not abating.

Many fashion companies are restructuring their supply chains to reduce exposure to single-region dependency; near-shoring, dual sourcing, and supplier diversification are increasingly common strategies; however, these shifts come with added complexity and investment requirements, particularly for smaller brands and suppliers.

FAQ

What should fashion companies do now?

1. Map total landed cost by SKU and origin. Calculate the full cost of each product including tariffs, freight, delays and carrying cost. Use this data to identify which categories justify nearshoring and which still require offshore scale.
2. Build dual-sourcing capacity for core products. Establish qualified second suppliers in different regions for products that represent more than 10% of revenue. Test production runs now, before a disruption forces an emergency switch.
3. Invest in end-to-end supply chain visibility technology. Deploy systems that track shipments, supplier performance and inventory in real time. Prioritise integration across ERP, PLM and logistics platforms to enable AI-driven forecasting.
4. Stress-test pricing elasticity by category. Model customer response to price increases of 5%, 10% and 15% for each product line. Identify where margin protection requires operational efficiency rather than price hikes.
5. Renegotiate supplier contracts for flexibility, not just price. Secure terms that allow order adjustments, smaller minimum quantities and shorter lead times. Pay a modest premium for responsiveness in an environment where speed mitigates risk.
6. Establish a tariff and trade policy monitoring function. Assign responsibility for tracking regulatory changes, filing for duty drawbacks and optimising Harmonized System classification. The savings from active trade compliance often exceed the cost of nearshoring.
7. Build inventory buffers for constrained categories, not across the board. Increase safety stock only for products with long lead times, high demand volatility or single-source risk. Avoid blanket inventory increases that tie up cash and increase markdown exposure.