Tariffs: Retailers Are Better Prepared This Time Around
As President Trump enters his second term, retailers are better equipped to navigate the potential impact of tariffs. During his first administration, many companies reduced their exposure to China, diversified supply chains, and negotiated with suppliers to reduce costs.
Williams-Sonoma CEO Laura Alber notes that the company has shifted 50% of its sourcing away from China. Additionally, 81% of its merchandise now comes from other regions in Asia and Europe. Alber highlights the benefits of domestic furniture manufacturing, allowing for faster delivery times.
Similarly, Ralph Lauren and Gap have diversified their supply chains. Ralph Lauren now sources less than 5% of its products from China and is prepared for future tariffs. Gap has less than 10% of its products coming from China and is actively developing new markets for sourcing.
While retailers have taken steps to mitigate the impact of tariffs, analysts expect that price hikes will be necessary if proposed tariffs are implemented. William Blair analyst Dylan Carden estimates that a 25% duty on apparel could lead to a 5-10% increase in consumer prices.
However, retailers face challenges in passing on these costs to consumers due to inflation and a lack of pricing power. Carden emphasizes that this could be particularly difficult given recent price increases.
Despite these challenges, retailers remain focused on providing value to customers. Gap CEO Richard Dickson emphasizes the importance of presenting consumers with the best products at competitive prices.
As the situation develops, it remains to be seen how consumers will react to potential price increases. The impact of tariffs on the retail industry will depend on various factors, including the specific products targeted and consumer sentiment towards higher prices.