By Linda Longo
Despite the best efforts of the American Lighting Association (ALA) to appeal the inclusion of the lighting category, the Trump Administration finalized List 3 and imposed a 10-percent tariff on products imported from China as of September 24. That percentage will increase to 25 percent at the start of 2019 unless there is a stunning reversal.
Furniture and lighting manufacturers whose factories are located in other parts of the world (i.e. Indonesia, South America, Mexico, Thailand, and the Philippines) and those who manufacture their goods in the U.S. are not affected by the ruling.
For an industry already beleaguered by competition from multiple channels – most specifically online dealers – the price increase caused by the tariffs is a devastating blow. How well vendors reacted to the news is up for debate among retailers.
Some manufacturers immediately announced unilateral price increases as of October 1; others held back on raising prices for the remainder of the year, deciding to absorb the cost rather than further hamper their distributors’ profitability.
For companies like Varaluz, which makes most – but not all – of its products in the Philippines, the first round of tariffs is relatively manageable. “However, when the 25-percent increase occurs, that [number] is a lot harder for manufacturers to take on,” notes Ron Henderson, President. Varaluz did not raise prices after the initial tariff, but Henderson admits that the company will have to take a closer look as the new year draws closer.
Other companies have behaved similarly. Light bulb/source provider MaxLite, which relies heavily on Chinese production, made a commitment to its dealers to hold prices through December 31.
“MaxLite will continue to work to mitigate the effects of tariffs on its prices and will not implement a general increase, as some competitors have done, in response to the tariffs imposed on goods imported from China,” the company told its customers. “[We] will continue to closely monitor the tariff situation and its impact on the lighting industry, and will keep customers informed if, and when, specific pricing adjustments need to occur.”
The timing of the tariffs taking effect was particularly painful for those manufacturers exhibiting at the Fall High Point Market in October, an important show for order-writing. For that reason, ELK Group International made the decision to not raise prices until November 1.
“We have developed a plan to soften the impact to you while being mindful of the additional costs to our business, which also include rising raw material prices,” a notice from ELK to its customers read. “October High Point attendees will be able to place orders at the show without the impact of the new price adjustments.” ELK added that it would subsidize the increase by offering “pre-tariff pricing” for the month of October.
Mac Cooper, President of Uttermost – which has two showrooms in High Point – released a similar statement ahead of the Fall market. “The 10-percent tariff is painful to all of us, but we intend to do all we can to minimize the burden to our customers. In a nutshell, we’ll absorb the tariff cost through October, and then add a 2-percent surcharge starting in November to help with the tariff cost. This 2-percent will go away if the tariff is lifted, but will be adjusted if it goes to 25 percent next year.”
Another company willing to absorb the extra cost for now is Maxim. “We understand the impact price increases have on your business and your ability to offer your customers the best possible value. It is for this reason that Maxim-ET2 has decided to absorb the additional costs associated with this tariff.
“In August Maxim had a small adjustment to our pricing along with the release of our new catalog; however, this adjustment was solely due to increases in material and labor costs from the past year and went into effect September 15, before any tariffs were put into place. Maxim will not be instituting any additional price increases this year to pay for the costs of the 10-percent tariff.”
WAC/Modern Forms customers in particular were heartened by the position taken by the manufacturer regarding the tariff increase.
“We are taking a strong stance to support our dealers,” the company said in an announcement. “Primarily we decided against a general price increase in favor of sharing the cost of this new tax with you in the form of a reduced surcharge [taking effect October 16]. Our intention is to minimize disruption to your business and the real cost of the tariff that would be further compounded to your customers under a price increase. Here’s the hard truth: Percentage margins don’t mean anything if we sell less.”
Addressing the new construction market, WAC’s statement read, “There is limited amount of money available for construction and we all have to recognize that project budgets are not likely to grow proportionally to the taxes imposed…There is an opportunity for us to work together to keep the dollars needed to buy a light as reasonably as possible and sell more lights.”
The stance taken by these manufacturers has hit a chord with retailers; they appreciate the efforts of vendors who are trying to help mitigate the damage of tariffs to their bottom line. However, there is much discussion in the showroom community as to handle even the slightest of increases when they have already been losing margin to low-ball internet pricing.
One concern is whether manufacturers will increase their IMAP pricing (to reflect the tariff) to help level the playing field for the brick-and-mortar showrooms. Many believe the internet giants will absorb the increase with little complaint and that the onus will be on the smaller distributor, who may have no choice but to pass the increase onto the consumer or take a loss by matching the online price. Others hope the national attention on the tariffs will be in the consumers’ mind when the price conversation occurs on the selling floor.
The controversial tariffs haven’t been bad news to everyone, however. None of the domestic lighting manufacturers interviewed anticipate a drop in sales for 2019, and many are hoping for an uptick due to the tariffs.
“We have an advantage, tariffs or no tariffs, especially when it comes to commercial projects,” notes Jeanne-Marie Gand, VP/Marketing of Hubbardton Forge in Vermont. “As an American manufacturer, we’re able to create custom products with a very reasonable lead time and can ensure a reliable delivery date.”
According to Malcolm Tripp, President of American Lighting Brands (which includes domestic manufacturing for Framburg, House of Troy, Arroyo Craftsman, Thumprints, and Scatchard Stoneware), estimating how deeply the tariffs will affect his lighting business is complicated.
“About 30 percent of House of Troy’s and 50 percent of Thumprints’ sales derive from finished goods that are imported, while Framburg, Arroyo Craftsman, and Scatchard Stoneware are all made in the USA,” he explains. “To what extent any of the product lines are affected by the tariffs is very difficult to predict because there are many countervailing factors including – but not limited to – the fact that other inputs may be affected regardless of the country of origin. We do not know the price inelasticity of lighting products relative to other competition for disposable income, and, at least in the short run, the uncertainty created may dilute or outweigh the intended benefits.”
For the hospitality and custom market, Tripp believes there will be little impact. “Given the type of projects we target, I believe that most of our competition is made in the USA also, so any effect would be minimal,” he states.
Since the tariffs only took effect in September, many believe it’s too early to realistically predict the fall-out. Nancy Shott of Utah-based Hammerton comments, “Most offshore manufacturers have elected to absorb the majority of the tariff cost imposed to date, so I think the long-term impact of the tariffs has yet to reveal itself. If the 25-percent tariff hike goes through as planned, we’ll see a different story in 2019. Regardless, our customers are thrilled to know that it’s business as usual at Hammerton, since we are [as of yet] unaffected by the tariffs.”
Just as with many domestic manufacturers, the hospitality and custom sector should remain the same, if not increase. “Many Hammerton clients have told us that they are now looking to source domestically wherever possible for a variety of reasons. Cost is only one part of the equation for them, and for many it’s not the most important,” Shott says. “There is huge demand for a level of quality and service that offshore manufacturers can no longer provide at a competitive price point.”
Regarding the impact of tariffs, Barbara Restin, Vice President of Arizona-based Ultralights Lighting comments, “I cannot predict the future, but I will tell you my main concern is that the trade wars with China and other countries have the potential of destabilizing the U.S. economy, which could then ultimately result in less business for all American manufacturers.”
Then again, the opposite may come true. “If the economy continues to grow with the tariffs, we may become more competitive with offshore product from a price — and also from a production time — standpoint,” Restin states. “For the hospitality sector, we are sometimes able to edge out offshore product with our turnaround times, reasonable price points, and quality for stock and modified product. We don’t anticipate that changing.”
As the start of the new year comes closer, the consensus is that the industry will be holding its collective breath and bracing for the worst.