Tariffs Cause Price ‘Uncertainty’ for Retailers, Consumers
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Whose wallet is getting hit harder? Firms aim to qualify, and thus hypothetically quantify, the impact of the U.S.-China trade war on both the consumer and the retailer. To which, the results are still unclear.
With China’s Customs Tariff Commission saying recently it will impose new tariffs on some $75 billion in goods in response to the U.S. government’s additional 10 percent tariffs on approximately $300 billion in goods imported from China, many are bracing for impact.
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In its report released today, Intelligence Node, an AI-powered real-time pricing tool that compares retail assortments, categories and products finds that more than half (or 54 percent) of the 1,000-plus U.S. consumers surveyed are “concerned about the tariff impact to their wallet.”
“Smart retailers know they should plan for this at the start of the product life cycle — as early as the manufacturing stage,” said Intelligence Node’s chief executive officer, Sanjeev Sularia, to WWD, citing a wavering consumer faith in the economy that corners retailers with the markup dilemma.
Read More: Retailers, Brands Brace for Trade War Impact by Diversifying Sourcing
Whether it’s moving production to other countries or stepping up their vendor cost initiatives or “selectively calibrating” their pricing strategies, there are many variables involved in a retailer’s day-by-day strategy and decision-making to offset costs, as Hilco Global, an independent financial services company, cited in its recent insights report to help lenders navigate the uncertainty.
Does day-to-day uncertainty call for real-time reaction?
“For those who weren’t able to plan this far in advance, managing margins at points of sale, in real time, is a strategy that can help them pivot to please consumers, and lessen the grip that the tariffs will have on their profits,” Sularia said.
The prescription may just be being “prescriptive in the products, and quantities of product,” as Sularia sees it, while pointing to another strategy to consider is to avoid raising prices on tariffed goods that are very price-sensitive, and instead offset costs by slowly raising the cost of items that have more price elasticity.
According to Intelligence Node’s research, 61 percent of consumers are “sometimes deterred” from buying a product online because of its price.
“The trade wars are bringing added uncertainty which has the market and consumer confidence starting to slow, if not teeter on declining,” according to Sularia. He believes “dynamic and responsive pricing,” as well as a “bird’s-eye view of specific items in their inventory” can absorb some of the shock from the tariffs, so consumers “don’t have to bear the burden of inflation, or worse, be driven even further away from making purchases.”
With already low margins to begin with, Sularia believes these companies can lose nearly a third of their gross margins, according to the data from the American Apparel and Footwear Association, which cites 40 percent of clothing and 70 percent of shoes sold in the U.S. as being made in China.
Read More: Five Potential Trade War Winners
According to the data, 31 percent of the survey respondents attributed their repeat purchase from the same store to “low prices” and more than half the respondents were concerned about the increase in product prices as a result of the new tariffs.
When asked whether there is a maximum pricing tolerance level for a new product, Sularia settled on sub-10 percent, for a new product from a company already active in that category.
More than half of consumers surveyed were concerned about counterfeits when shopping online for luxury goods. Sularia sees the data as a another reason that luxury brands might hoist manufacturing out of China, to deter the luxury counterfeiting business.
“Guesswork on price-points and inventory management won’t cut it,” said Sularia, citing a need for brands to protect their brand from pricing violations as sellers and retailers try to “out-price the competition.”
Regardless, rethinking business models and reducing dependency on China for manufacturing has been much of the industry agreement, yet the exact trajectory of the trade war remains unclear. Best assessed, as Sularia argues: in real-time.
For More WWD Business News:
Over Three Quarters of Apparel, Footwear and Home Textiles to Be Hit With Tariffs on Sept. 1
Intelligence Node Scoops $5.5 Million in Series B
China to Impose New Tariffs, Retail Shares Drop
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