While it only been about a month since the Trump administration increased tariffs on certain Chinese goods to 25% from 10%, a significant share of small and midsize retailers are already feeling the effects on their bottom lines, according to a new survey.
53.2% of retailers said the tariffs are hurting sales as many must pass their increased costs along to consumers, including 23.2% that said the tariffs are having a “major impact” on their revenue, according to survey of about 30,000 small business owners conducted from May 28-June 4, 2019, conducted by financial services firm Quickbridge. 46.7% said the tariffs have not had an impact on sales.
The tariffs are forcing some merchants to figure out how to adjust to the volatile trade environment, says Ben Gold, president of QuickBridge. “Either you let your margins take a hit as a result of the additional costs, or you raise prices to compensate,” he says. “In both scenarios, there is potential for your business to be hurt; the former means you take in less revenue, the latter could result in lower sales as customers look elsewhere.”
In fact, 45.6% of respondents plan to raise prices further because of the tariffs, including 15.2% of which expect to implement “major” price increases; 54.3% of respondents do not plan to increase their prices as a result of the tariffs.
Walmart Inc., No. 3 in the Internet Retailer 2019 Top 1000, is among the retailers that have warned that the Chinese tariffs could force them to raise prices. And Jerome Griffith, CEO of apparel retailer Lands’ End (No. 60), on Tuesday told Fox Business that its large manufacturing presence in China is forcing it to consider adjusting prices due to the tariffs. “The easiest thing to do is to pass that on to the consumer,” he said. “For us, we’re pretty well diversified, so we’re looking at other options.” But finding another resource for its manufacturing would be a “very long process.”
Price increases can be challenging to retailers because they could lead shoppers to another merchant’s site, Gold says. “Whether a business is facing a tariff or not, there is always a concern about losing customers when prices are increased,” he says. “In this situation, business owners at least have the benefit of most customers knowing about the tariffs and potentially expecting price increases.”
The tariffs appear to be impacting at least some retailers’ long-term plans. 50.6% of respondents said the tariffs will have an impact on their business growth plans, including 25.5% that said they will have a “major impact” on their plans. 38.4% don’t foresee any impact and 11.0% have no plans to grow their business.
“We still don’t know how serious these tariffs are or how long they’re going to be in effect,” Gold says. “This is a good opportunity to explore alternatives, set up meetings with potential vendors and give some thought to it so you can be nimble as we learn more about the long-term trade situation.”
That trade situation is fluid. Last week, for example, Trump threatened to impose tariffs on all goods made in Mexico. The White House said the tariffs would rise as high as 25% in October if Mexico doesn’t stop the flow of migrants and asylum-seekers across the U.S. southern border. Then, on Friday, Trump agreed to suspend his plans for tariffs on Mexican goods indefinitely following an agreement reached with the country to help curb the the “irregular migration” issue.
In China, the tariffs are causing issues for a number of merchants. For example, 18% of footwear and apparel retailer Nike Inc.’s (No. 34) factories are located in China, according to its manufacturing map. Thus, Nike—along with Adidas AG (No. 36), Crocs Inc. (No. 292) and other footwear retailers that have factories in China—recently urged the president to reconsider his tariffs on shoes made in China, saying in a letter posted on the industry trade association’s website that the policy would be “catastrophic for our consumers, our companies and the American economy as a whole.”
The small business owners surveyed share similar sentiments. Nearly half, or 49.1%, believe the tariff increases will have a negative impact on the U.S. economy. 32.3% believe it will have a positive impact and 18.6% think it will have no impact.
Bloomberg contributed to this report.Favorite