Brands grapple with strained cash flow amid tariffs
A number of small businesses are now dealing with the fallout of strained cash flow due to inventory stockpiling amid tariff pauses.
When tariffs were paused in April, many retail brands took advantage of the lower rates to ensure having enough merchandise on hand for busy periods like Prime Day, back-to-school and the holidays later this year. With their cash conversion cycles being out of sorts, these companies now have a glut of inventory on hand long past the rush of people panic-buying ahead of tariffs that occurred over the spring. For bootstrapped brands that ordered large quantities of inventory, the decision has had a ripple effect, leading to more tough choices. For example, many are holding off on investments, such as hiring new talent, or being forced to delay product launches and marketing campaigns that were previously in the works.
Industry watchers are seeing an uptick in brands struggling to manage their already tight cash flows.
Steve Carpenter, COO of North America at credit reporting agency Creditsafe, said many consumer brands are facing cash-flow challenges even during the tariff pauses.
“Tariff uncertainty is forcing many retailers and suppliers to front-load inventory ahead of the holidays, tying up significant cash in goods that may not move immediately,” Carpenter said. At the same time, he added, higher interest rates are driving up the cost of financing that inventory, thus creating a double bind. “For smaller brands, especially, this can squeeze liquidity and increase the risk of payment delays or supplier strain, right as the most critical sales season begins.”
When tariffs on Chinese imports fell to 30% in May, Samantha Coxe, the founder and CEO of dental tech company Flaus, rushed to import five months’ worth of inventory — far more than the eight to 10 weeks the company usually has on hand. The goal was to lock in products before tariff rates spiked again. But that strategy has tied up substantial working capital.
“We have less cash to do experiments with because it’s all tied up into our inventory,” Coxe said.
The result: Flaus has had to pause plans for splashier brand marketing efforts, including a $30,000 celebrity-studded pop-up in The Hamptons and multiple influencer events. Instead, the company is shifting focus to scrappier, ROI-positive tactics.
“We’re focused on trying to gift and seed as much product to [influencers and content creators] as possible,” Coxe said. “None of this is a paid partnership. And hopefully, if they love the product, they will be willing to share it with their followers.”
Greg Shugar, who runs a neckwear business called Beau Ties of Vermont, is in a similar bind. In January, to get ahead of tariffs, he ordered three and a half times his typical inventory volume to avoid higher tariff rates. Later in May, after tariff rates on Chinese imports were lowered to 30%, he placed another hefty purchase order that was three times larger than his standard monthly order. But that decision has also strained the company’s finances, tying up capital in unsold goods.
The strain of bulk inventory purchasing has rippled through Shugar’s business, leading to tough decisions and scaled-back ambitions. Among the sacrifices: shelving plans to buy a $4,000 used manufacturing machine that would have expanded necktie production.
Other already-squeezed brands are facing similar dilemmas.
Haley Pavone, the founder and CEO of Pashion Footwear, said the direct-to-consumer brand has placed much of its growth strategy on hold as she navigates tariff challenges. “It is causing us to hold off on all hiring plans, and also cut back on our seasonal POs significantly because we are too tied up in current inventory,” she said.
Typically, the company places four purchase orders per year, one for each season. That has been thwarted due to the inability to plan orders for upcoming seasons. “As a strict DTC business, we don’t get to see a ‘bulk relief’ from wholesale payments. Every single individual shoe sale counts,” said Pavone. And because of the onslaught of tariffs, the brand had to raise prices, which impacted its usual promotional cycle, also leaving more money tied up in inventory. This has hindered the company’s ability to hire adequately and prepare for the next season. For example, working capital tie-up is now impacting Pashion’s ability to prepare campaigns for the spring and summer of 2026.
On the staffing front, Shugar has made surgical cuts to keep costs in check. Two production employees shifted from full-time to part-time hours, and one customer service role was eliminated.
Still, Shugar counts himself lucky, in a way, as not every brand has the cash reserves to build up inventory ahead of tariffs. “Even if they saw it coming, they don’t have the luxury of pre-ordering a bunch of stuff. And I think those are the brands that are going to get screwed the most,” he said.
One such brand founder is Matthew Hassett, CEO of Loftie, which makes digital clocks and lamps in China. For Hassett, tariffs have disrupted the carefully-timed flow of cash his company relies on to balance inventory, sales and loan payments. Hassett said Loftie has delayed placing new purchase orders for fall merchandise as it waits for tariff clarity, despite knowing that such a delay could create stockouts.
Loftie’s lamp sales dropped 80% in May, creating a ripple effect. “If our sales are down 80%, we don’t have that cash coming in to both repay the lender and to order new inventory,” Hassett said. “It’s a quick downward spiral.”
The effects go beyond inventory decisions. Several of these business owners said they are cutting costs elsewhere to avoid passing higher prices onto customers. Flaus, for example, is transitioning from air freight to ocean freight for the first time and negotiating better terms with its manufacturer to offset tariff-related costs.
“I’m afraid to jump into anything right now,” Shugar said. “Everyone is just on eggshells.”