Trump’s China tariff dispute leaves retail and consumer brands in limbo

Discussion
President Trump with President Xi Jinping, July 2017 - Photo: The White House
Apr 05, 2019
Tom Ryan

With the uncertain trade climate, Williams-Sonoma is already assuming tariffs on a wide range of home goods imported from China will rise to 25 percent in 2019.

Steps to mitigate the impact of tariffs have included moving “a ton” of sourcing out of China, implementing price increases, shifting upholstery tasks to the U.S. and consolidating trade partner contracts. Williams-Sonoma in fact baked a 25 percent tariff rate into its 2019 guidance.

“Between all these moves and also some mix shifts and some selective price increases, we’re prepared for the worst,” CEO Laura Alber said March 20 on the retailer’s fourth-quarter conference call.

Williams-Sonoma has taken these actions despite the Trump administration’s decision for the second time not to raise tariffs on March 1 on $200 billion of Chinese imports from 10 percent to 25 percent as trade negotiations progressed.

So far, a limited range of consumer goods, including furniture, digital cameras and accessories like handbags, luggage and sports gloves, are subject to the 10 percent tariffs. Apparel and footwear, for now, are excluded.

Most publicly held retailers and vendors are assuming the tariff rate will remain at 10 percent and that tariffs on other items aren’t coming. Many, however, have been further diversifying sourcing away from China since the trade dispute began last July. GoPro announced last December that it plans to move production of “most of its U.S.-bound cameras” out of China.

Other steps to mitigate any potential hit from tariffs have included bringing in goods early, reengineering product, re-costing factory contracts and optimizing logistics.

On his company’s conference call on March 27, Five Below’s CEO Joel Anderson said the retailer would explore price changes and “shifting even more product” to other regions should tariffs rise to 25 percent. He admitted, “It’s really early for me to speculate on this one. I mean, the tariff thing has been all over the map. It’s constantly changing.”

DISCUSSION QUESTIONS: What advice would you have for retailers and their vendor partners on managing the potential impact of the U.S.-China trade dispute? Do you see more pros than cons in assuming a worst-case scenario?

Please practice The RetailWire Golden Rule when submitting your comments.
Braintrust
"No choice but to lobby, lobby, lobby and hope that a good decision gets made."
"Retailers and brands should be preparing for the worst and hoping for the best."
"Sadly, the changes that companies are instituting will not be reversed. As companies and countries adjust they will not re-adjust when the “trade war” is finished."

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10 Comments on "Trump’s China tariff dispute leaves retail and consumer brands in limbo"


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Mark Ryski
BrainTrust

Trade policies have real consequences for retailers and consumers, and we’re starting to see these now. Shifting supply sources from China to other countries is not a simple proposition, and many retailers are going to struggle with this. Until and unless the U.S. and China get a trade deal worked out, retailers are going to be faced with a number of serious, complicated and potentially damaging consequences to their business.

Paula Rosenblum
BrainTrust

This is tricky. The industry embraced the tax cuts, but now the industry is saying “stop! no tariffs.” In for a penny, in for a pound, and all actions have consequences.

No choice but to lobby, lobby, lobby and hope that a good decision gets made.

Dick Seesel
BrainTrust

Retailers already began scrambling in 2018 to deal with the impact of tariffs and other trade issues involving China. They would be smart to follow the Williams-Sonoma lead by looking for alternative countries of origin, raw materials sources and assembly sites. Unpredictability is a concern when the Administration’s trade (and immigration) policies disregard these ripple effects.

But it’s not always easy to create a new supply chain from whole cloth. I spoke recently to a former colleague charged with handbag product development; moving the sourcing from China (subject to large tariffs) to Cambodia (duty-free) isn’t so simple if the know-how and logistics infrastructure aren’t in place.

Liz Adamson
BrainTrust

Retailers and brands should be preparing for the worst and hoping for the best. That may mean diversifying their manufacturing and supply, slowly testing price increases and looking into other ways to cut costs. There will be different solutions depending on the brand. If tariffs are raised they’ll be prepared, if not they’ll have cut some fat from their operations and be that much more prepared for the next wave of political upheaval.

Gene Detroyer
BrainTrust

Sadly, the changes that companies are instituting will not be reversed. As companies and countries adjust they will not re-adjust when the “trade war” is finished.

Trump has already won the “trade war” but he doesn’t seem to know it or care. The Chinese have already made changes for foreign companies not requiring a Chinese partner, FDI, IP, and any requirements for sharing technology (granted, enforcement is always an issue). These concessions are in China’s interest and they understand it. These changes were determined by the Congress, not just a trade negotiator.

My fear is that the administration will always find a reason not to lift the tariffs. So retailers better be prepared for the long haul. China can play the long game. 82 percent of China’s exports go to countries other than the U.S.

Shep Hyken
BrainTrust

Assume the worst, simply to be ready when it happens. Unfortunately, prices will potentially go up. A few ways to get the consumer to be on the retailer’s side:

  1. Transparency: Give the explanation. If parts of an item – or even the entire item – are subject to the tariff, educate the customer.
  2. Be part of the cause of fighting the tariff: When consumers see you’re fighting to keep their prices lower, they will be more agreeable to the higher prices.
  3. Find ways to lower prices to offset the increase from the tariff: Talk to vendors and suppliers to work out a plan that benefits the consumer and doesn’t hurt sales. You’d be surprised how creativity can be sparked for the right reasons.
Craig Sundstrom
Guest

Some may think it’s good that tariffs now have a question mark rather than an exclamation mark after them, but it’s like finding out a relative is still in critical condition: sometimes uncertainty is the worst possible outcome. How does one print a catalog or sign a contract when you don’t know (within 15%) what your prices are going to be only a few weeks or months from now? The advice, of course, is to be as flexible as possible, which in the case of things like catalogs means moving to digital (where prices can be updated quickly); and train your sales associates to learn the phrase “sorry, but we have no control over that” in as many languages as possible.

gordon arnold
Guest

Change does not come naturally. Why should China change when they can negotiate forever while encouraging their trade partners to put on pressure? We have changed the players, but it is the same old game with more noise. Government needs to know more about who really pays tariffs and how and where they should be applied.

Ricardo Belmar
BrainTrust
The keywords for retailers and brands are “planning” and “education”. Planning for the worst is now a requirement. Hopefully, those plans won’t need to be executed, but you had better be prepared in your supply chain if you don’t want to be hit with sudden consequences. The fact is there will be consequences no matter which choices are made — once retailers implement those supply chain changes, they won’t be undone when these trade disputes fade away. The change will be permanent, so brands have to be sure they can withstand whatever those plans turn out to be. Second is “education”. Or better yet — “transparency”. If forced down that path, be sure to educate your customers so they know why products and/or pricing are changing. Don’t just absorb the change; let customers know the “why” behind those changes so they can, in turn, make their voices heard to government officials in the future. The uncertainty in the trade situation is the worst aspect of all this, and consumers are sure to be the ones… Read more »
Cathy Hotka
BrainTrust

The current occupant of the Oval Office promised tariffs, then delivered. Perhaps retail might have made a more discerning choice when choosing whom to support.

wpDiscuz
Braintrust
"No choice but to lobby, lobby, lobby and hope that a good decision gets made."
"Retailers and brands should be preparing for the worst and hoping for the best."
"Sadly, the changes that companies are instituting will not be reversed. As companies and countries adjust they will not re-adjust when the “trade war” is finished."

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