Matrix’s Outdoor Recreation and Marine Investment Banking Group
William O’Flaherty, Managing Director  |  Matt Oldhouser, CPA, Vice President
Jason Keyser, CFA, Senior Analyst  |  Hayden N. Daniel, Analyst

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Overview 

Introduction
In light of recent economic policy changes, the active apparel industry finds itself at a critical inflection point. The introduction of new “reciprocal” tariffs—followed swiftly by a partial suspension—has created both confusion and urgency across supply chains. As companies work to understand the current effective rates and their implications for day-to-day operations, it has become clear that proactive supply chain management is now more essential than ever. In addition to our more traditional update on the state of capital raising and M&A, this sector update outlines the current tariff landscape, explores the observed impacts on the industry, and highlights how leading organizations are navigating the uncertainty. From hiring advisors to recalibrating pricing strategies, the most successful firms are those that treat volatility not as a threat, but as a call to action.

Tariffs in the Active Apparel Industry
First, let us orient ourselves to the situation by reviewing the historical tariff regime in the apparel industry. Even before the announced tariff rates on April 2nd, clothing imported into the U.S. had been subject to tariffs and was in fact some of the most heavily impacted by import duties.

According to the United States International Trade Commission, average applied U.S. import tariff rates on apparel were already 14.6% in 2024, as compared to 2.3% for all goods. The newly implemented tariffs and even the current effective amounts, which in many cases are lower than those originally announced (for now), still have a meaningful impact on the U.S. apparel industry and consumers. University of Delaware Professor, Shen Lu, who specializes in fashion and apparel studies, believes the Trump Administration tariffs would increase the average U.S. import tariff rate to 30.6% and result in approximately $26.0 billion in duties on apparel, more than double last year’s level.

This sudden escalation in trade policy underscores the broader theme of this update: the need for preparedness, adaptability, and strategic foresight when navigating uncertainty. Whether in managing tariff exposure or preparing for M&A, the ability to respond decisively to change is what separates top-performing management teams from the rest.

What We’re Seeing
Although the tariff rates announced on April 2, 2025 were certainly well above where many anticipated, there has been ample warning for these policies, and most organizations we have spoken with have been proactive in their approaches to dealing with tariffs. Below are insights into how some of the most dynamic organizations are navigating the situation.

Source: United States International Trade Commission

Negotiating Supplier/Vendor Terms
Needless to say, the impact of tariffs will be felt on both sides of the vendor-customer relationship, and therefore, management teams are taking this as an opportunity to share the burden that’s been created. Clearly maintaining the businesses’ existing supplier relationships is preferable to switching if solutions to the new economic realities can be brokered.

Based on our observations, many vendors were willing to absorb hikes in the ~10.0% range to ensure business continuity, although with potential longer-term tariff levels meaningfully above that threshold, we understandably are now seeing resistance on suppliers bearing the full brunt. Nevertheless, many are pursuing rearrangements that share the pain of these new economics. In some cases, we are learning that vendors are providing extremely flexible payment terms to customers, while in other cases, suppliers are offering shipment delay or cancellation accommodations that otherwise might not be available.

For most, maintaining the status-quo is the easiest means to weather the storm without material supply chain modifications, although that might not be practical in all situations.

Seeking Alternate Suppliers/Vendors
The best management teams view vendor redundancy as a long-term goal and are on a never-ending mission to improve their supply chains. After all, it is easier to identify alternative vendors and negotiate for the most advantageous terms when markets are quiet.

Indeed, trends show that many in the apparel industry have smartly been seeking diversity away from Chinese suppliers as far back as 2015.

Even if the current tariff situation necessitates near-term and decisive action, we caution our clients to avoid acting rashly and instead view each prospective vendor as a fair-dealing and long-term partner. If the vendor cannot meet the brand’s quality standards or volume requirements, they may introduce risks into the business larger than the tariff risks themselves.

In general, we recommend focusing on identifying alternative countries of origin, or by reassessing substantial product transformation standards, which could impact country of origin designations.

Geographies that many are presently considering as alternatives to China include Vietnam, Cambodia, Mexico, and Central America. Each of those comes with its own set of considerations, including labor/logistics costs, quality of supply chain infrastructure, and long-term viability

Source: Office of Textiles and Apparel
Notes: CAFTA-DR = Central America-Dominican Republic Free Trade Agreement; USMCA =  United States-Mexico-Canada Agreement

In particular, we encourage market participants seeking alternative vendors to keep a close eye on the country of origin’s dependence on the U.S. apparel consumer as this could heavily influence leverage in future international trade negotiations.

Prudent Management of Inventory
With ominous tariff clouds looming on the horizon for months, most domestic apparel brands took the opportunity to bulk up on inventory levels with the benefit of cost visibility.

Some would question whether those measures were led by higher consumer demand; however, the steep drop in imports in February compared to prior months indicates these high growth rates were due to anticipation of tariffs, rather than changing consumer sentiments. Those who acted decisively in this manner now have larger reserves and a better ability to wait out the storm.

Furthermore, if the bulk of forward purchasing was focused on core products, the risk of unsold inventory will be minimal.

Turning towards forward-looking inventory management, as outlined earlier, many domestic organizations are working with their overseas partners to cancel or delay outstanding orders impacted by tariffs. In anticipation of potential near-term resolution to tariff levels, particularly with China, operators are working closely with freight managers to ensure capacity for shipments. The likelihood of pent-up demand could cause short-term freight pricing volatility and capacity constraints, so collaborating early and often with logistics partners should remain top of mind.

Calculating Exposure, Margin, and Pricing Impacts
To inform the decision-making process outlined above, managers should solicit a full view of the tariff exposure and quantify the financial impact to the business. Once complete, various scenarios can be assessed to determine the best operational and financial path forward for the business and team.

Sources: Office of Textiles and Apparel; UN Comtrade
Notes: ASEAN = Association of Southeast Asian Nations, CAFTA-DR = Central America-Dominican Republic Free Trade Agreement

The Budget Lab at Yale notes that the 2025 tariffs will disproportionately affect clothing and textiles, with apparel prices rising approximately 17.0% under all tariffs.

Needless to say, the impacts to U.S. based companies will not be one-size-fits-all and therefore most operators have taken care to quantify the impact to their business based on a number of variables: (i) vendor location/product country of origin; (ii) percent of cost structure impacted by tariffs; (iii) product-specific considerations; and (iv) other company or relationship-specific considerations.

While we recommend starting by simply reviewing the location of your vendors and the historical/budgeted spend with each vendor; it is then usually advisable to take a step further and calculate both exposure as a percentage of cost of sales and by each SKU to allow for more flexible forecasting and scenario/sensitivity analysis.

The table to the right illustrates a fairly-straightforward example of the sensitivity analysis many U.S.-based apparel companies are contemplating. The exercise would be to understand the tariff impact on cost structure and what the company’s price increases would need to be to maintain margins.

The horizontal axis represents the portion of a company’s cost of sales which are exposed to tariffs. Generally, this percentage will be higher for companies whose cost of sales is concentrated in material and goods and lower for companies whose cost of sales is concentrated in direct labor, logistics, transportation and other low-exposure categories.

As a simplifying assumption, we include a range of 40.0% – 60.0% in the table.

Along the vertical axis are various levels of incremental tariffs that impact the company’s supply chain. Again, to simplify the exercise, we’ve included a number of incremental tariff scenarios to help manage “base case” and “worst case” scenarios that a company may consider.

As the table illustrates, the difference in required pricing adjustments that result from the multiple scenarios can be vast. Most domestic active apparel companies are performing this (and similar) exercises on a SKU-by-SKU level to inform decision making processes and layout various strategies based on the results of the trade negotiations.

Pursue Relevant Subject Matter Experts
This is perhaps the most underutilized measure we see implemented. While the natural reaction may be to resist any incremental cost in periods where other expenses may be accelerating, there are tremendous benefits an expert can offer to a middle market management team.

Outside advisors and consultants can collaborate with the team to develop a sound tariff mitigation strategy based on prior experience and best practices rather than guesswork.

This will instill more confidence in the plan and make it easier to adhere to (in turn making it more effective).

Moreover, outside advisors will save the team time by reaching courses of action more decisively, and by assuming the responsibility of continuously monitoring the unfolding situation and suggesting changes to the plan as necessary so the management team can continue to focus on operational challenges which likely play closer to their strengths.

The appropriate advisor can span from those who specialize in identifying efficient sources for the same products (supply chain), to customs/brokerage specialists, to longer-term strategic advisors (investment banks) to ensure proper capitalization and/or opportunities for acquisition. We are hearing remarkable stories of consultants who are fast at work leveraging exemptions and loopholes that exist (USMCA eligible products, HTSUS Article 98/Annex II items, etc.).

While these resources come with associated costs, companies with high amounts of potential exposure should seriously consider exploring these types of expert assistance.

Final Observations
While aggressive tariff policies and the accompanying uncertainty pose short-term risk to the active apparel industry, both directly and indirectly, it’s important to note that long-term conditions in the industry position it well.

Even as we conclude this update, Treasury Secretary Scott Bessent reassured individuals at a closed-door summit that he expects trade tensions with China to de-escalate.

Nevertheless, despite the recent and evolving shifts in policies and tariffs, the outdoor recreation economy is one that has grown 36.0% in real terms since 2012. This growth is in part driven by shifting consumer base demographics and preferences. Of particular interest are the attitudes of Gen Z and Millennials, who combined make up 42.4% of the U.S. population, which will likely lead to both increased proportion and intensity of participation among these groups in the active apparel industry. Industry participants keeping these favorable long-term demand trends in view will continue to seek growth organically and through acquisitions.

Sources: Bureau of Economic Analysis; Statista

Additionally, Matrix believes the heightened M&A activity associated with industry consolidation in recent years will continue to persist beyond the short-term turmoil due to consistent and increasing buyer appetite for category diversification, international exposure, and seasonal revenue stability.

Our confidence in the active apparel market for capital raising and acquisition interest remains strong, particularly for those operators who display the foresight and strategic planning to position their supply chains for long-term sustainability. The tariff upheaval has challenged numerous management teams and will serve as a point of differentiation for capital providers looking for best-in-class operators. Importantly though, it’s critical for management and ownership groups to utilize the resources available to them to support their decision-making. Tariff and supply chain-specific consultants can be extremely valuable in the exercise of evaluating alternatives, as can investment bankers who can keep an eye on long-term value creation and capital provider reactions to various scenarios.

Sources: McKinsey & Company Sporting Goods 2025 Report

 

State of Active Apparel Market – Key Industry Data

Active Apparel Key Macroeconomic Indicators

Sources: Federal Reserve Economic Data, Capital IQ

Operational Indicators and Measurements

Despite External Risk Posed by Tariffs, Operational Metrics such as Gross Margins
and Year over Year Category Sales are Healthy across the Industry

Sources: IBIS World; Capital IQ; U.S. Census Bureau; Bureau of Economic Analysis; Fortune Business Insights; Outdoor Industry Association

Active Apparel Market Data & Updates

Market Valuation & Performance

Trade War Uncertainty has Dampened Current Valuations Despite
Longer-Term Tailwinds in the Active Apparel Market

Notes: Based on Capital IQ data as of April 28, 2025; see page 14 for additional detail on companies included in each category; composite analyst sentiment excludes company outliers that would materially impact market takeaways

Active Apparel Public Trading Group

Notes: Based Capital IQ as of April 28, 2025; 1. EV/EBITDA and P/E multiples above 30.0x considered not meaningful (“NM”)

 

Key Recent Transactions / Deal Spotlight

Acquisition Spotlight: Kontoor Brands To Acquire Helly Hansen

Notes: Based on Kontoor Brands investor presentations; 1. At time of transaction announcement (February 19, 2025)

 

Active Apparel Select Recent Transactions

Despite a Challenging M&A Environment, Consolidators Continue
to Pay up for Market Leaders

Sources: CapitalIQ; various industry publications

 

What We’re Reading

What We’re Reading – Recent Tariff Policy Impacts & Outlook

 

 

Appendix A: Outdoor Recreation & Marine Public Trading Analysis

Outdoor Recreation & Marine Public Comparable Universe

Notes: based Capital IQ as of April 28, 2025; 1. EV/EBITDA and P/E multiples above 30.0x considered not meaningful (“NM”)

 

Disclaimer

The contents of this publication are presented for informational purposes only by Matrix Capital Markets Group, Inc. and MCMG Capital Advisors, Inc. (“Matrix”), and nothing contained herein is an offer to sell or a solicitation to purchase any of the securities discussed. While Matrix believes the information presented in this publication is accurate, this publication is provided “AS IS” and without warranty of any kind, either expressed or implied, including, but not limited to, the implied warranty of merchantability, fitness for a particular purpose, or non‐infringement. Matrix assumes no responsibility for errors or omissions in this presentation or other documents which may be contained in, referenced, or linked to this publication. Any recipient of this publication is expressly responsible to seek out its own professional advice with respect to the information contained herein.