Boomerang Tariffs! What should Savvy Suppliers do!

What are the implications of #BoomerangTariffs for the #retailsupplier ?What are the challenges they face on pricing strategies?  How can you leverage communication with the Retailer?  How can you mine the data that is so essential in these uncertain times?  #HRG CEO Boyd Evert & Al Frank explore how tariffs could lead to potential unintended consequences for various industries. 

Takeaways

• Boomerang tariffs can significantly impact suppliers' pricing strategies.
  
  
• Suppliers need to maintain open communication with retailers.
  
  
• Documenting conversations and decisions is crucial during tariff changes.
  
  
• Retailers often dictate pricing, leaving suppliers at a disadvantage.
  
  
• Tariffs may accelerate the trend of reshoring production.
  
  
• Data analysis is essential for suppliers to manage inventory effectively.
  
  
• Unintended consequences of tariffs can affect various industries.
  
  
• Suppliers should be aware of seasonal demand fluctuations.
  
  
• Maintaining a paper trail can protect suppliers during audits.
  
  
• Clear expectations between suppliers and retailers can mitigate risks.
  
  
• Navigating the Nightmare of Boomerang Tariffs
  
  
• Strategies for Suppliers in a Tariff-Heavy Market
  
  

Sound Bites

• "If I were a supplier, I would be terrified."
  
  
• "Retailers have you over a barrel."
  
  

Chapters
00:00
Understanding Boomerang Tariffs
02:51
Supplier Strategies Amid Tariff Uncertainty
05:07
The Impact of Tariffs on Production and Reshoring
08:00
Data-Driven Decision Making for Suppliers
10:52
Unintended Consequences of Tariffs
13:09
Final Thoughts for Suppliers in Uncertain Times

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"Wiser Decisions, Fewer Deductions"

Transcript

Boomerang tariffs could be a real nightmare for some suppliers. Can you dodge the damage of the boomerang? We'll talk about it next on the Savvy Supplier.

Welcome into the Savvy Supplier where we save you time and money. I'm Al Frank. Boyd Evert, the CEO of HRG is here and Boyd here's the news that's causing quite a bit of indigestion this week. The Trump administration is sending letters to various countries, warning them to strike a trade deal with the U.S. Or on August 1st, their tariffs will boomerang back to the same level they were back in April. Summai's high is nearly 50%. I'm wondering what's your reaction to the news about these boomerang tariffs and the possible impact on retail suppliers.

Boyd Evert: If I were a supplier, I would be terrified simply because of all of the back and forth. It's not just that you have tariffs potentially coming into play and who's going to pay for them. It is the iterative nature of this tariff rollout that you have these start and stops. And here's how it plays out, especially when you factor in post-audit. You have auditors looking at a series of threads and now these threads are probably spanning six months now. And some of these threads, people are going to be brainstorming about how, if this goes into effect, uh what are you going to do to help with, you know, the price, keeping the price low. And you've got broadly speaking, two categories of items. You have items that are extremely sensitive to price changes and so you would call those extremely high price elasticity, meaning that you increase the price, the demand drops. uh The textbook example of inelasticity in prices is cigarettes, right? You can continue to raise the price and the demand's gonna be relatively consistent. uh And so it's those items where there's a lot of sensitivity to it that you have to think through how is that gonna impact uh the bottom line because the discounters that you know such as Walmart and Target and Amazon it's all about trying to find that sweet spot keeping the price low to get the volume through versus trying to be more of a Let's say a mall store where you're selling premium items and you're more concerned about price erosion You want to keep that that price higher so? Just broadly speaking, those are my concerns is that you have all of these conversations that are out there that a year from now or two years from now an enterprising auditor is going to go in and see that and then figure out which of those email threads would serve their purpose in collecting as much as possible for the retailer.

Al Frank: Well, if these boomerang tariffs do come to pass, do you think suppliers will be forced to absorb some of the burden of those? And if so, are there any actions they could be taking right now to soften that blow?

Boyd Evert: Yeah, absolutely. I don't think there's any question whether or not suppliers are going to uh be taking a hit. just again, there's all of the mechanics of price changes uh rely on the, uh I shouldn't say mechanics, all of the tools for setting prices and changing prices are in the retailer's court. So, If you're trying to pass on a price increase and the retailer is not aligned, uh you are going to end up fighting a long and difficult battle to get that to take place. So just an example, 10 years ago, one of our uh major clients in an HBA category was pushing out a price increase. They had made some enhancements to their product and they were advertising it as such. They saw it as justifying a price increase and uh the retailer's competitor hadn't raised it yet. And these two were locking horns. uh In fact, I'll just say it was Walmart and Amazon. And so the Amazon team, the sales team was trying to get Amazon to pass on that price increase and Amazon was saying, well, Walmart hasn't, we're not going to raise our price until Walmart does. And then Walmart said the same thing about Amazon. this drug out for, I believe it was like 60 days, 60 or 90 days until finally it went into effect. And then uh in that particular uh case, the retailer had taken, both retailers had taken the price increase, but they hadn't increased their retail. So the P &L for those items, that family of items just was in the tank because they the retailer took the loss in the form of a profit on that item, cut their profit in more than 50 % and then turned around and then handed my client a bill for loss profit. And so that's an example, just one of many examples out there of how retailers really can have you over a barrel in trying to get you to uh delay. increase in the price. So my concern is if these do go into effect, even if it's just a handful of categories and maybe just a small subset of suppliers, there's going to be a lot of back and forth as to when that price increase takes place and then how much of a price increase.

Al Frank: Well, there might be increased import prices for certain parts that some suppliers need for their products. They might also get hit with supply chain disruptions and the extra costs that that might bring. It's hard to plan during such an uncertainty, but any thoughts on pricing strategies in a time like this?

Boyd Evert: Yeah, I think basically keep that conversation open with, with the buyer, making sure that you're, you're in constant contact. I mean, not to the point of annoyance, but at least to make sure there's a level of transparency about, um, you know, the costs and how this is going to be managed. And I think the other, the even more important, um, and that is important, but even more important is saving those conversations, the emails. that you're going back and forth. And if you have a conversation, phone or in person, you need to follow that up with an email and save that email because without that, uh you're to have an auditor looking at what's going on with cost changes and retail changes and making assumptions about what's going on. And so it's extremely important to have a paper trail, especially when you're in such a chaotic time frame or chaotic period rather, that there's just so many moving parts that I would be terrified for any of my clients to not preserve those email.

Al Frank: That's great advice. Do you think that the higher tariffs will cause more suppliers to bring production back here to the United States or at the very least to near shore or reshore with countries who have lighter tariffs?

Boyd Evert: Absolutely, I think that is the direction a lot of suppliers are looking at and even before this became an issue even back in the early 20 teens there was There are several initiatives by Walmart and others to build facilities for that would service us be it in North America and even being strategically located so that it would be easily distributed throughout the country. So there were initiatives in place. I think this just is going to accelerate that timeline. And I think the other factor in this, reason why we're not getting as much pushback, is just the automation, the level of technology that's there in the robotics. To me, it's almost a no-brainer to bring the manufacturing to reshore that or nearshore it just because of the technology involved.

Al Frank: It's so important right now for suppliers to keep informed about all the breaking news, but it's also important to be able to see real time data to help with decision making. Any thoughts on how suppliers can mine the data that they need to stay informed and up to date?

Boyd Evert: Yeah, great question. So I think one of the things, especially in this timeframe is where you have uncertainty is to really pay close attention to the demand, right? To sell through how your items selling through. And if, especially if there's any sort of seasonality to your, to your item, um, you know, whether it be Christmas or back to school or even just the cold and flu season, right? Or the soup season for some, mean, there's all sorts of different seasons out there, right? But you've got the, uh if you're not paying attention to the sell through on those items, what will eventually happen is the retailer, one, if it's seasonal, you're gonna have some huge markdowns coming out. But two, even if it's an item that's just evergreen, it's there all the time on the shelf, if you aren't paying attention, to the demand there and you end up having uh the retailers heavy in inventory, they may end up reducing your, your facings or points of distribution. So I think in this, this year, that's probably one of the things that we top of mind is to be extremely sensitive to the levels of inventory. You do not want retailers sitting on a lot of your product because I mean, back in the day, you know, then It was almost like guaranteed. You'll, they'll just push it out to the stores and the stores will create their end caps, but not in today's world. Today's world. It's like just, we're gonna, we're gonna discount that price and then hand you the bill for that, for those clearance items.

Al Frank: Well, the president has intimated that there will be a 50 % tariff on steel and aluminum imports, as well as a possible 200 % tariff on pharmaceuticals. What do you think the fallout would be for those industries if that does take place?

Boyd Evert: That's going to be a huge reset. And I think you're going to see um a lot of pressure for those tariffs to be repealed or to not go into effect. I'm hoping that those are just threats and those they're not acted upon. Because if they're acted upon, you have all sorts of unintended consequences. Just like one example, just with steel and aluminum,he packaging for canned goods. Let's just say vegetables, right? The margin on those are so thin. And I was reading an article a couple of weeks ago about the material costs that go into canned vegetables. And if the tariffs were to go in place, that it would increase the price of that item by more than 50%. I mean, the material for the can would suddenly cost. three or four times the amount of what it's uh packaging. So those are some of the concerns is that you only start to pick apart the problem at the level of the obvious, right? Where yes, automotive, manufacturing, but when you start to think of all the things that are downstream of that, there's gonna be all sorts of unintended consequences that we really even don't have a line of sight into. until we start to feel that pain. It's one of those things that's similar to fuel, for example. When fuel prices go up, it eventually impacts everything, right? Because you need fuel to move goods in the supply chain. fuel is a great example of a cost input that just, uh it's everywhere. It's pervasive. uh But when you're dealing with metals, you're dealing with uh ingredients and compounds for HBA and pharmaceutical items again that's who knows right I mean there's we don't have a clear line of sight to to a lot of a lot of products that sit on the shelf and so there's going to be some some uh some surprises if these tariffs stay in place of how widespread these price increases will be

Al Frank: Do you have any final thoughts for suppliers about what to do in these uncertain times?

Boyd Evert: I think the probably the best advice is to make sure that your lines of communication are open between you and your customer, the retailer, to make sure that all of the expectations are on the table, right? That there's not some hidden ask out there to maybe uh seek alignment going into uh into any new product launches as well as any new seasons. I just one example is the garment industry is in, I think it's like 15, 17 % increase. you're looking at the items in the fall, it's already on shore and stage, but in the spring, you know, that's how far reaching these tariffs could be. But again, you need to, you need to be able to communicate how you're going to execute on these,  on these product launches and the changing of items to make sure that there's no surprises. That's probably your, my worst fear for my clients are the surprises and then the lack of documentation around those surprises.

Al Frank: Well, it's no surprise that you've given us some great advice. Once again, thanks for taking the time to do this podcast. I know your phone has been blowing up and you're helping so many suppliers. You know, the experts at HRG are always ready to help you to take a look at your particular situation and to help you get a clearer picture of your next steps. You can schedule a free strategy call by going to the HRG website at HRG-audit.com or you can call HRG at 479.616.1600or you can email us at info@hrg-audit.com. Again, HRG is ready and able to help you when you need it most. And our wish for you is this, Wiser decisions, fewer deductions. See you next time on the Savvy Supplier.