Firms such as Walmart and Steve Madden are seeking price concessions from vendors but where those negotiations end up is too soon to tell.
As companies try to barter with upstream vendors to get them to share in the tariff pain, they could be finding that—unlike 2018—this time it’s different. Not only has the world changed, but there’s also overall uncertainty over how long U.S. President Donald J. Trump’s tariff increases will be in place.
In an interview in January with Kim Glas, president and CEO of the National Council of Textile Organizations, she said that the unit pricing for textile and apparel goods from China “has dropped 50 percent” since U.S. President Donald J. Trump applied Section 301 tariffs back in 2018. “So what does that say to me? That means that the Chinese are subsidizing their industry to continue having significant market share,” Glas said.
What isn’t clear is how much more the Chinese government might want to continue doling out subsidies, given that its economy is struggling with sluggish growth. Moreover, the fashion sector has adapted since 2018, moving some of the manufacturing out of China to countries such as Bangladesh, Vietnam and Cambodia. That business strategy became known as the China Plus One, evolving into China Plus Many as companies expanded their sourcing capabilities to counter supply chain disruptions. Some Chinese firms also branched out, expanding and building operations outside of China to capture market share.
But if the thinking that China Plus Many was the way to go, Trump’s second administration and its tariff-focused trade policy is likely chilling the options that companies have left in which to maneuver their operations. That would be hard to do or even plan for, given the reciprocal tariffs that are looming on the horizon.
In Trump’s speech to Congress Tuesday night, he said that reciprocal tariffs—citing the European Union, China, Brazil, India, Mexico and Canada, as well as South Korea—will kick in on April 2. The thinking is that they will be difficult to implement for U.S. Customs. But that doesn’t appear to deter Trump. He’s also shown that as easily as tariffs could get implemented, they could get put on hold just as quickly. He did that with the 25 percent tariffs that went into effect Tuesday on Mexican and Canadian imports, only to delays some until April 2 on Thursday.
That kind of back-and-forth uncertainty makes it hard for companies to do their business planning. That’s especially so if the push for tariffs is based on a negotiating tactic on Trump’s part to exert pressure to get the concessions that he wants from foreign governments. Meanwhile, fashion firms and retailers are looking at their options, while trying to hold down costs.
Tractor Supply Co. CEO Hal Lawton said earlier this year that he’s dusting off his 2018 playbook. “It’s roughly kind of a third, a third, a third. You’re putting some of it back on the manufacturer, we’re finding some ways inside of our P/L to offset the impact of the tariff, and then some maybe pass along to the customer as well,” he said.
Walmart Inc.’s CFO and executive vice president John David Rainey last November cautioned in a CNBC interview that Trump’s plan to increase Chinese tariffs might force the discounter to raise prices. A Bloomberg story said the discounter had asked some Chinese suppliers to reduce prices by 10 percent, noting that some vendors, including apparel suppliers, pushed back.
“As we have done in the past, we will continue to work with suppliers to keep prices as low as possible for customers. In the meantime, we encourage all parties to work towards finding common ground that will protect consumers from price hikes and continue to grow our economy,” a Walmart spokesperson told Sourcing Journal on Thursday.
Steve Madden CEO Ed Rosenfeld last month said during the company’s earnings conference call that his firm is already in talks with factories on price concessions. And he didn’t rule out the possibility of selective price increases in the fall.
In December, J.Jill’s CFO Mark Webb said during the company’s earnings conference call that the impact regarding potentially “all country tariffs would be meaningful” and would “require some level of negotiation with vendors, some level of price reviews on our products and some level of absorption within the company.”
Consumers for the most part are already expecting price increases. Coresight Research predicted that U.S. retail sales will decelerate slightly in February and March as consumer pessimism and concerns over inflation continue to weigh on their minds.
For companies, they’ll have to find the right balance between absorbing some of the cost increases and how much they can actually pass along to the consumer. That will be different for each company. A Walmart supplier that’s already working with a narrow profitability window will be more reluctant to provide price concessions, while a vendor for another retailer that has a bit more flexibility might be able to shave off a percentage or two. And suppliers working with brands may find other ways to cut costs, perhaps either through the use of different, less expensive materials or through design changes that can simplify or cut some of the production costs.
