How Savvy Suppliers can Survive & Thrive during the Tariffs Whiplash!

In this episode of #TheSavvySupplier, HRG CEO Boyd Evert & Al Frank are joined by Woodridge Retail Group CEO Jon Allen, and they discuss the implications of #Tariffs for #RetailSuppliers. They share how the lessons learned from the #2018TradeWar between the United States and #China can help Suppliers to know the most likely path forward in 2025. They emphasize the importance of communication, understanding costs, and the need for suppliers to adapt their #SourcingStrategies in light of current economic uncertainties. The conversation also touches on the potential for #FutureTradeAgreements and the necessity for suppliers to prepare for unpredictable #MarketConditions while seeking opportunities amidst challenges.

Takeaways

• Over-communication is essential for managing tariff impacts.
• Understanding your costs is crucial for effective management.
• Suppliers must be transparent with retailers about pricing changes.
• Companies with multiple sourcing options will be more resilient.
• The consumer may ultimately bear the cost of tariffs.
• Historical lessons from 2018 should guide current strategies.
• Suppliers should prepare for potential inventory challenges.
• Ignoring market changes can lead to significant risks.
• There are opportunities for suppliers who adapt quickly.
• Maintaining a long-term perspective is vital in uncertain times.

Titles

• Navigating Tariffs: Lessons from 2018
• Economic Impacts of Tariffs

Sound Bites

• "Over communication is key."
• "Through chaos, there's opportunity."
• "It's a confusing time for suppliers."
• "Wiser decisions, fewer deductions."

Chapters

00:00

Navigating Tariffs: Lessons from 2018

03:04

Economic Impacts of Tariffs

05:57

Supply Chain Resilience and Sourcing Strategies

08:48

Trade Imbalances and Future Agreements

11:57

Preparing for Uncertainty in Retail

14:52

Opportunities Amidst Chaos

18:14

Final Thoughts and Advice for Suppliers

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"Wiser Decisions, Fewer Deductions"

Transcript

Retail supplier, how will #Tariffs hit your bottom line? What are the wise moves you should make right now? Yes, it's a bumpy ride, but we've got shock absorbers for you today on this episode of #TheSavvySupplier. Welcome into the Savvy Supplier where we save you time and money. I'm Al Frank alongside Boyd Evert the CEO and co-founder of HRG. Today, we also have a special guest with us. Jon Allen is CEO at Woodridge Retail Group

Jon, thanks for joining us today.

Happy to be here with you today, Al.

You know, both of you gentlemen have so much experience and knowledge, so we really need your advice today on the tariff situation. I think actually a good place to start might be to go back in time a little bit to 2018. That's when the US and China had trade war over tariffs. Sounds familiar. Boyd, let's start with you. What are some lessons learned from 2018 that can help suppliers to make the right moves right now in 2025?

I would say the first thing is just over communication, right? Because if you have these #TariffWars you don't know how or when this is going to impact you. could maybe components if you're a consumer electronics company, perhaps if you're HBA and you've got product being built over there that are shipping here, is just communicating that because a lot of people think we need to focus on sourcing. Well, that's far upstream, right?

(01:30.826)
You really can't change sourcing overnight. But what you can change overnight is communicating with the people in merchandising and also in the supply chain, right? Because this could impact your on hand and the inventory that you have available. So a lot of times people don't think about the things that aren't within their control. They're too focused on, I wish we had multiple points of sourcing and they don't look at it from the perspective of

This could impact our on time and in full. So we need to communicate this is what's available. This is the inventory available. And then also as well as the pricing and a lot of retailers have in their master service agreement or master vendor agreement that you have to give them 30, 60, 90 days dating ahead of a price increase. So those are some of the things that are top of mind from, from where I sit.

Jon, thoughts on that? Any lessons learned from 2018 that suppliers can take advantage of?

There were hard lessons learned from 2018. 2018 was a wake up call for suppliers. And it was, it was more than just about pricing. As a Boyd says, it's about transparency. And you quickly found out which suppliers were guessing. They didn't really know their numbers and you can't manage what you don't know. So really digging into the details, really understanding your, your, all aspects of your cost for.

an item and what the repercussions are of those changes with the tariffs. Some idea of, understanding what's your really your relationship understanding that with your retailer. So how was, how was these changes going to be perceived? So it's about that transparency is as Boyd was sharing, you know, how, how are you really giving them hard numbers that

(03:31.554)
They can truly understand rather than just a general email. But being specific with what your issues are and working with the retailer to really find a solution that's going to work for both of you. And I'd say the other thing is, know, you just can't set flat footed if there's other sourcing options. You need to take a good hard look.

That's good stuff. Know your numbers. I like that. You know, in 2018, the trade war kept escalating with the U.S. eventually targeting $500 billion in Chinese imports. China then retaliated with tariffs on American goods. And around and around it went with a cycle of tariff increases by both sides. Do you think that's what we can expect this time around? Or do you think maybe both countries will...

do all they can to not relive that painful experience we went through in 2018. What do you think, Boyd?

First, let me cite one of my favorite philosophers, Mark Twain. We learned from history that we learn nothing from history. There's some people that came out of the Tariff War, that came out of COVID, right? Two warnings, signs that we really need to have multiple points of sourcing. And lo and behold, we have some companies that are sitting exactly where they were back in 2018. They didn't learn the lessons. Now, there are companies that did. One of our clients has multiple points of sourcing. So this, even though it's gonna

inflict some pain, but not nearly as much as some other companies where they just double down on their sourcing out of China. And now they're at a point where they're at the mercy of these tariffs. And the only thing they have going for them is just over-communicating to their customers, the retailers, in hopes that that communication will stave off any additional fines or penalties that'll eat away at their bottom line.

(05:19.374)
Jon what do you think the most likely economic impact of tariffs will be? Do think it will lead to higher inflation? And if so, Who do you think will bear the biggest burden from that?

We're going to get into quotes. I'm going to start with Yogi Berra. All right. It's going to be deja vu all over again. The impact to both, you know, there's a of things going on, I would say. One is just we have a much more, there's a twist. We have a much more fragile supply chain than we did pre-pandemic. So we're

We're not anywhere near what the costs were. It's higher to ship and certainly lower than it was during the pandemic. There's, there's labor issues. There's instability. You look at what's going on even over in the Red Sea. There's geopolitical issues. It's harder to ship. Now we're having to take boats around the horn. So there's stacks and stacks of costs that go on top of these tariffs. And what we're hearing from our retailers is they're really trying to hard.

hold the line on pricing as much as possible. In fact, you know, talking to some of my peers here in this area, suppliers who've gone forth with price increases have not fared very well. So I think in short term, we're not going to see a lot of change. think if this goes on, you know, weeks more, it's ultimately the consumer that's going to bear the cost.

We saw this in 2018. Average family was impacted about $800 through these tariff costs. I don't know that we're going to see that this time, but I just don't believe if this goes on long term, we're going to see anything but increased prices in stores.

(07:19.064)
Boyd, I see you shaking your head. Would you, you echo that those thoughts or you think something else is going to happen?

Yeah, so I think as we talked earlier, I think this is going to be something that we're going to see surprises that we didn't anticipate. Some of them are going to look very familiar to COVID, to 2018 tariff wars. I really think where this is going to land is somewhere where you're going to see companies that have multiple points of sourcing gaining market share over those that don't, right? So there's going to be some

risk and reward for those companies that decided to diversify because there is additional expense, right, when you have multiple points of sourcing. So those companies will be more resilient. The companies that are really tied into China, and it's really hard to extricate yourself from China because, as you recall, before we had the the Tariffs Wars back, I think it was 2017. And it bled into 2018, there was components, electronic components, where there was a sudden surge because Tesla was taking off and there was other

technology intensive applications and there was a demand for those components and I remember dealing, we have a pretty large presence in the TV space and in the consumer electronic space and a lot of them, we were working with them to communicate that they're gonna have to pass on a price increase sooner than they had planned simply because they were absorbing that those component pricing because the demand was so high. So.

I think what we're going to see is we're going to see some companies rewarded for moving to those multiple points of sourcing. And then we're going to see some companies that are going be punished because maybe they're a little too aggressive in raising their prices. And the way I see it from my perspective is essentially suppliers are going to have to choose where are we going to take the risk, right? And by that risk, they're going to have to...

(09:13.996)
basically take the risk that they're incurring and build it into the pricing, right? So if they've got people in merchandising within the retailers and they're not really aligned with passing on immediate price increases as the supply chain dictates, well, they're going to have to bake that risk into their everyday price, right? So I think it's going to be interesting to see how this shapes the industry, but

Either way, it's either going to be the consumer or the shareholder. I just don't see any other person that's going to pick up this tab, right? I mean, it's going to come out one way or the other.

Jon, do you think in the end the Trump administration will be able to correct the trade imbalance with China? And will they be able to stop China from stealing hundreds of billions of dollars worth of intellectual property?

Yeah, now that's a question we'd all like answered today, but I really believe if you just look at what's happened in last few weeks, you've got more than 20 pending agreements ready to go with countries. And one of the most, I think one of the most significant ones is India. So India is one of the tougher trade partners that we have. And I think correcting

That imbalance with India is going to go a long way. We've and again, that's a tough trading partner. The sketch is already in place for that plan. We've also seen countries like Vietnam that really has some emerging powerhouse infrastructure coming along that's offered a zero tariff. So as I believe as we make inroads with countries like India with Southeast Asia.

(10:58.734)
As a European Union tips, you have got the majority of the countries lined up to support the United States. Ultimately, this is going to drive our costs down. It's going to be better for our country. China, at some point we will get an agreement. It took, if you go back to the 2018, that was a year long discussion. And, you know, some of the risks that Boyd's already pointed out is you have choke points in the supply chain.

where if everybody's shifting to another country, that country doesn't necessarily have the capacity to take on the work. And so you do get tied to China. And I think eventually we will have a better agreement with China. think it's going to be, you know, the IP issue is one of the most damaging and you see that reflected in how many countries have been willing to go cut a deal or partner with China. That hasn't happened. So there was

talk that they would partner with South Korea, Japan, et cetera. None of that happened. Why? They have not been a good trade partner and the theft of intellectual property is just rampant. If you get up to a certain high number of distribution with the United States, you guaranteed a knockoff come compete with you. And that's part that I think will make the biggest difference to

consumers to our industry here in the United States to even other countries. So ultimately, I think it's gonna be good, not just for the US, I think it's gonna be good for the world. When the dust settles, I think we're just in a season that if you have a plan, if you've gained three or five plans, it's even better. But this is not the time to set pat. It's time to one really understand your numbers.

Two, be very proactive with your sourcing. There are opportunities out there that are unexplored. I've found some for some of my clients that have kept them, you know, within sense of where they were previously. But, you know, the biggest thing is, yeah, you can't control the waves, but you can build a better boat if you're on top of your numbers.

(13:16.546)
Boyd, you've got economists on both sides of this thing, such divergent opinions. Some economists predicting that raising tariffs will cause a slowdown in the economy. Others are predicting the economy will boom once we begin cutting new trade deals, as Jon just pointed out, other countries lining up with trade deals. And once those start to happen, it could be really good things.

Quite a range of outcomes, though. How should suppliers prepare for a future when the outlook is so unclear at the moment?

Well, one of the concerns that I'm having just as we're talking through this is what do do with the the companies, the retailers and even some suppliers that were very aggressive and pulling in as much merchandise as they could before the tariffs hit? Now we have the problem of if if a retailer, a particular retailer is heavy in inventory, even though they they were the ones asking for these orders to be filled. Now you're going to be on the hook for any markdowns and clearance items, right? If these if these items aren't moving.

and they want to make space for something else, they're going to put a lot of pressure on you to provide funding. We saw this happen multiple times in COVID. They were looking for the essential the hand sanitizers and all that they were those were those orders were constantly being cut. were constantly replacing them. Then the other merchandise that really wasn't that that important to have. They were they were trying to push it out the door, right? They wanted to make room for the things that were in high demand. So

One of the concerns I have is we have just in time inventory, right? Where everything is just made so that it's almost like a timing pattern in football, right? Where you throw the ball before the person even looks back and makes the cut is that you've got that sort of scenario across all of our retailers. And then you have, if you have a glut of inventory, you're going to have to deal with that. And so one of my concerns is you'll have some people sitting on inventory where maybe the margins weren't as great.

(15:20.802)
because they had to rush those orders in and now they're going to be on the hook for paying for those markdowns on the way out. there seems to be a lot of risk that we don't necessarily have a line of sight to. This might not be as big an issue, but if this were to drag out for a couple of months, I would expect to be, we'd be in a situation where there might be heavy in some inventory and then maybe they're out of stock and that you could be fined for not fulfilling those orders.

One anecdote is during during COVID one of our clients had an item that was extremely high demand. And that item was in such high demand that several retailers decided they weren't going to waive the on time in full for those orders. And I remember talking to an individual that was over the US operations and he was complaining about all these different fines he was getting from all the major retailers.

And I, shared with him that this is essentially like an arms race is that each retailer wants to make it more painful for you to cut their order versus the competition. And as I walked him through this, he just looked at me and said, Boyd, how does that help us make any more of these items? And I said, it, doesn't, I'm sorry. I'm sorry, Jim, but it doesn't, know, and, and, but we, we, had a meeting that was supposed to go a half an hour. went to an hour and a half just as we went through each scenario. But essentially we got them to a place where.

They were doing a better job communicating their forecasts and hedging that so that those fines weren't as painful. that initial shock, he was unaware of why some of those fines were structured that way. And it was a matter of just inflicting pain.

Jon, it's kind of a strange time that we're living in right now. We've talked about some things that suppliers should do, but are there some things that suppliers should not do right now?

(17:17.408)
Yeah, I would say this. mean, one, you've got to look at the long-term. think if you're reacting to the daily news and, you know, it's changing at such a rapid rate, you could quickly find yourself in a bad situation. But it all goes back to as we open this conversation, less about pricing, more about transparency with your buyers. If you're not communicating,

If you don't know your numbers, if you're not on top of that and you can't articulate that to your buyer, you're in a world of hurt. So ignoring the problem is the worst thing you can do. Setting back and really gaming, you know, three to five scenarios is most helpful for your business. Let's look at all the possibilities, but simply ignoring the situation and trying to conduct business as usual is a case for failure. know, as Boyd was saying earlier,

You go back to the 2018 scenario, those that had really thought through their processes, thought through their numbers that had contingency plans, they gained shelf space because in the chaos, others are going to fumble, right? They're just going to lose a whole of their business or they're going to panic and do something that's really not in the best interest of their business and fail through that way. I've looked at this chaos in my conversations with my clients.

As this, you know, through the chaos, there's opportunity through, through the chaos, others are going to fail. This is an opportunity to possibly get more items on the shelf, but those that stay pat, those that don't know their numbers, you're making a critical mistake. That's going to literally cost you.

Boyd, any final thoughts for suppliers today?

(19:07.374)
Maybe take some time off and not follow the daily news. Maybe look for those weekly, you know, digests. Give yourself a break because I know as I'm reading these stories, I'm feeling like I'm a day trader. I have no skin in the game other than my clients skin and yet I got some anxiety dealing with the news. So yeah, I think maybe we all need to step back and take a breath and take a beat and just to try to enjoy life. It's spring. Let's get outside and

and get away from the newsfeed.

I think that's really great advice. Could be better for our blood pressure for sure. So gentlemen, thanks for your wise advice today. It is a confusing time for suppliers, maybe a nervous time for them as they try to sort out their options. But I want to mention that the experts at HRG are able to take a look at your particular situation. It can help you get a clearer picture of what you need to do right now. If you're not sure what your costs really are, if you're not sure what steps you

should be taking right now. Here's your invitation. Contact us. We can help you. You can go to the website at HRG-audit.com, HRG-audit.com, or you can call us at 479-616-1600. You can email us at info @ HRG-audit.com. All of these ways to contact us are there in the show notes for you. So don't hesitate to reach out to HRG to schedule a free strategy call. It's a crucial time for you.

And HRG is here to help you. Our wish for you is this, wiser decisions, fewer deductions. See you next time on the Savvy Supplier.