Carter’s, the iconic children’s clothing retailer that has dressed generations of babies and toddlers, is closing 150 stores across North America over the next three years—50 more than initially planned. The move, announced by CEO Douglas Palladini, comes as the 160-year-old brand faces mounting financial pressure from rising tariffs, increased product costs, and shifting consumer habits. For families and employees, the closures mark the end of an era and the start of an uncertain transition.
Profits Under Pressure
Despite steady sales, Carter’s profitability has sharply declined. In the third quarter, net income dropped from $58.3 million to just $11.6 million, even as sales hovered near $758 million. Palladini attributed much of the downturn to new tariffs, estimating that duties could cost the company $200–$250 million annually, on top of the $110 million already paid this year. “Elevated product costs, in part due to the impact of higher tariffs, as well as additional investment, weighed meaningfully on our profitability,” Palladini explained.
Carter’s has long diversified its supply chain, sourcing 75 percent of its products from Vietnam, Cambodia, Bangladesh, and India, with less than 3 percent from China. Yet, even this strategy could not shield the company from the global trade shocks that have driven up costs across the industry. Distribution centers in the U.S., Canada, and Asia continue to operate, but every shipment now carries a heavier financial burden.
Restructuring and Store Closures
The company’s response has been swift and far-reaching. In addition to shuttering 150 stores in the U.S., Canada, and Mexico, Carter’s will reduce its office workforce by 300 positions—about 15 percent—by the end of 2025. The third quarter alone saw $6.1 million in restructuring costs, with another $4–$5 million expected in the next quarter. In a rare move for the retail sector, Palladini and the board have volunteered to take pay cuts next year.
“We will act decisively to improve our prospects by closing low-margin retail stores, right-sizing our organization, and honing product choices,” Palladini said. The company expects to save more than $10 million annually starting in 2026, with some of those savings earmarked for marketing and growth initiatives. Carter’s plans to redirect customers from closing stores to nearby locations and its online platform, aiming to strengthen margins and remain competitive in a crowded children’s apparel market.
Adapting to a Changing Marketplace
To offset rising costs, Carter’s is implementing selective price increases and negotiating with suppliers to reduce tariff impacts. According to CFO Richard Westenberger, “More of next year’s revenue gains will come from price than units,” signaling a shift in strategy. Recent negotiations have already trimmed $40 million from expected duties.
For parents, this means higher prices on familiar brands, but many remain loyal. “Carter’s is the only brand I trust for my daughter’s clothes—they last through every wash,” said Atlanta mother Jasmine Lee, who shops both in-store and online. Still, the closures are forcing families to adapt, with more turning to e-commerce and secondhand options as physical locations disappear.
The company has also streamlined its product range, cutting up to 30 percent of its offerings to focus on higher-quality items. Premium lines, including OshKosh B’gosh and Simple Joys, now drive sales, with families responding positively to improved fabrics and organic options. “We’re seeing a clear shift toward quality and comfort,” said retail analyst Maria Gutierrez. “Parents want fewer, better pieces, and Carter’s is adjusting accordingly.”
Global Context and Competition
Carter’s challenges reflect broader trends in the $227 billion global children’s clothing market, where North America accounts for about a third of sales. The company faces stiff competition from Baby Gap, Target’s Cat & Jack, Walmart’s Garanimals, H&M, and niche brands like Primary and Hanna Andersson. Globally, brands are grappling with the same tariff pressures and shifting consumer preferences, with many investing in e-commerce and sustainability to stay relevant.
Internationally, Carter’s has found some relief. Its international segment grew 4.9 percent in the third quarter, led by gains in Canada and Mexico. While a handful of overseas stores will also close, established distribution networks and brand recognition abroad provide a buffer against domestic headwinds.
Looking Ahead
Carter’s has paused its 2025 financial guidance, citing “significant uncertainty” around tariffs and trade policy. The company continues to invest in digital channels and expects cost-saving measures to improve cash flow by 2026. Dividends remain in place, and $500 million in notes are set for refinancing in 2027.
For families, employees, and investors, the stakes are high. As Carter’s navigates a turbulent retail landscape, its future will depend on its ability to adapt—balancing tradition with innovation, and cost pressures with the enduring trust of parents worldwide.