BRACE FOR IMPACT
When it appeared that the danger of additional tariff increases would remain on hold after the initial 10-percent hike last fall, many in the industry released their collective breath. The raw shock of the September tariffs had tempered to a dull roar by January and retailers attending the January and spring 2019 markets continued buying at relatively the same levels they had pre-tariff. The political stalemate lulled some manufacturers and distributors into a false sense of security; the more time that passed with no change, the more it seemed likely the whole tariff business would blow over.
Unfortunately, negotiations between the U.S. and China fell apart in late April, leading to an immediate 25-percent hike days later. Companies that were able to absorb the 10-percent price hike in the fall without passing it onto customers now had no choice but to join the majority in raising prices.
This latest increase occurs just as retailers, manufacturers, and designers are gearing up for the summer markets, and a time when many distributors are looking to place re-orders. If manufacturers and distributors did not experience much of a pinch last fall, they surely will be feeling an uncomfortable margin squeeze now. Naturally, the consumer is next in line to feel the pain, expecting to pay more for everything from sneakers and apparel to shampoo, dog collars and leashes, toilet paper, lighting and home furnishings, plus foods such as tuna, salmon, and pears.
Aside from the rising costs of most everything, there is another concern. According to a report by international banking and investment firm UBS, the trade war with China could easily put some retailers out of business.
“The market is not realizing how much brick-and-mortar retail is incrementally struggling and how new 25-percent tariffs could force widespread store closures,” UBS analyst Jay Sole wrote in the report.
Already this year there have been sizable store closings nationwide at chains such as CVS, Payless, and Victoria’s Secret. And according to Coresight Research, retailers have announced more closings in the first 20 weeks of 2019 than all of last year. Even Walmart executives have expressed concern, with its CFO Brett Biggs warning in part, “increased tariffs will lead to increased prices for our customers.”
Many lighting manufacturers have been attempting to forge new supplier relations with countries not affected by the tariffs, but such a huge shift in manufacturing may be impossible depending on the type of products made and quantities needed.
There is no easy answer. While buying from domestic manufacturers is one solution, it won’t cover a store’s entire assortment. Lighting retailers have tremendous fortitude – having weathered the Great Recession when the housing bubble burst – and I am hopeful they will be able to withstand this latest tariff debacle and remain profitable.