Matters of import: how tariffs could affect the trade

| August 27th, 2019

Matters of import: how tariffs could affect the trade
"Matters of import: how tariffs could affect the trade"

US retailers will feel the impact of levies on Chinese products. Those that innovate and diversify will have an advantage.Long before the threat of tariffs on Chinese goods loomed large, brick-and-mortar retailers in the US were facing challenges. So far this year, US retailers have announced plans to shut down over 7,000 stores after almost 6,000 closed in 2018, according to research and advisory firm Coresight Research, which estimates that the total could climb as high as 12,000 by the end of the year.

With President Trump set to impose a 10% tariff on $300 billion of imports from China on September 1, the move is expected to have a profound impact on retailers and consumers. China currently supplies 42% of all apparel, 73% of household appliances, and 88% of toys sold in the US, according to the National Retail Federation (NRF). And a recent analysis from education and research website World’s Top Exports indicates that China is the largest exporter of jewelry in the world. With $13.3 billion in outgoing jewelry shipments last year, it accounted for 12.9% of the global total.

A volatile state

For retail, these [new] tariff increases [would] be on a magnitude that has not been witnessed in decades,” says Johan Gott, principal in the consumer and retail practice of global management consultant A.T. Kearney. “Over $100 billion of consumer goods would see tariffs imposed.”

That could directly impact retailers’ bottom lines, warns Gott. “The cost of goods would rise. Retailers have the choice to absorb that cost, or to pass it on to consumers. In the first instance, it would go straight to margins, which in most cases are already razor-thin.” But increased prices could result in fewer purchases, he says.

Discount retailers and general-merchandise retailers would be most at risk, predicts Tyler Higgins, a director in the retail practice of consultancy firm AArete. But while industries such as auto parts, and retailers with a diversified manufacturing base, would be safer, even these could suffer, he cautions. “As [the stock market] rises, optimism reigns, and as it falls, so does optimism. Tariff fears produce a similar reaction.

US retail is already in a volatile state, continues Higgins. “The tariffs are just the next pressure point…that will threaten more retailers and continue to result in closures by all types of retailers. If the effect of tariffs kicks in, we expect those retailers that are the most innovative, with the most loyal customers and the most diverse supply base, to be in a position to increase their competitive advantage over those retailers that continue to struggle.”

Not an ‘apocalypse

Despite these concerns, Marie Driscoll, managing director of luxury and fashion at Coresight, cautions against panic. While President Donald Trump’s trade policies are exacerbating retail’s problems, she says, there are other forces at work. A Coresight report from early this year positioned 2019 as a year of reinvention for retail, with more “spectacular” and data-driven offerings, and increasingly smooth integration of technology with brick-and-mortar stores, among other trends.

In addition, she says, store owners and analysts would do well to stop using the term “retail apocalypse” when it comes to tariffs — or anything else, for that matter. Calling it “an over-used phrase that surfaced about two years ago,” she says current concerns don’t warrant hyperbolic language, but flexibility, diversification, and new avenues of sourcing.

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