When it comes to tariffs on Chinese imports, U.S. companies have apparently learned their lesson: The only certainty is there will be more uncertainty.
Stocks slid for a second day Tuesday as U.S. President Donald Trump ratcheted up his threat to put tariffs of 15% on $160 billion of Chinese goods as of Dec. 15—on top of the duties already in effect. Investors would have been wise to heed the cautious words of corporate chieftains, who over the past few weeks were already baking the estimated impact into their forecasts and renegotiating their deals with suppliers in preparation.
Some companies will have an easier time of it than others. Matt Shay, chief executive officer of the National Retail Federation, said large retailers may have the scale to pressure suppliers for discounts to mitigate any damage, but small and mid-sized companies won’t have the same flexibility.
‘What We Can Control’
Company playbooks include a range of actions, from building up inventory ahead of the new tariffs to negotiating lower prices from suppliers that are loathe to lose the business of a major customer.
Matt Reintjes, CEO of Yeti Holdings, summed it up on an Oct. 31 conference call as “remaining focused on what we can control.” Chief Financial Officer Paul Carbone acknowledged the duties “remain a bit of a moving target,” but said the drinkware retailer has taken measures including stocking up on merchandise ahead of Dec. 15 and negotiating lower costs from suppliers. It’s also trimming back on things like marketing inserts and packaging.
Similar moves were announced at Best Buy—which is among retailers most exposed to China tariffs.
“There just really isn’t a precedent for where we are right now and there are a lot of moving pieces,” CEO Corie Barry said on a Nov. 26 call. The company saw a “limited number” of price increases in its latest quarter.
Some companies, like toymaker Mattel and footwear chain Boot Barn Holdings, have expressed confidence in their ability to negate any impact—at least for now.
“Many of our larger vendors have been successful with getting cost concessions from their Chinese partners,” Boot Barn CFO Greg Hackman said on Oct. 30, adding that any price increases wouldn’t come until February at the earliest. “As such, we believe that the impact of tariffs for the current fiscal year will be negligible.”
The brunt of any duties is already included in Boot Barn’s full-year forecast.
Mattel CEO Ynon Kreiz, speaking to investors on Oct. 29, said that while any impact isn’t expected to be material this year, being nimble will be key going forward.
“We do have several mitigating factors or actions that we can take,” he said, including price increases and changes to suppliers and product assortment. He said Mattel could also “transition to a different manufacturing structure.”
A number of companies, from fashion footwear maker Steven Madden to discount retailer Dollar Tree, have also said they’re working to move production out of China.
Companies may be prepared for how the tariffs will affect their own costs, but they can’t plan as confidently for consumer behavior. There’s a risk that American shoppers, who have kept the economy humming even as manufacturers scale back, could start to tighten their purse strings if tariffs lead to price increases.
Sales were strong over the five-day Thanksgiving holiday weekend, with shoppers spending an average $361.90, the NRF reported, a 16% jump from a year earlier. Shay, the group’s CEO, warned in a Nov. 29 interview that the new tariffs could sap that momentum.
“We would put the Dec. 15 round of tariffs in that category of potential self-inflicted wounds we hope we avoid so we can continue this momentum into the season and into 2020,” he said.
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