Bracing for impact: How retailers are preparing for the new tariff landscape

Bracing for impact:
How retailers are preparing for the new tariff landscape

The potential changes in the tariff landscape under the incoming administration have many bracing for impact. Tariffs on imported goods—especially those from China—could lead to tighter supply chains, strained margins, and higher prices. Across all channels, retailers are preparing for what’s to come, and their strategies offer valuable insights for suppliers. What are our retail teams hearing? We talked with former senior merchants Jason Reiser and Todd Matherly to gain their perspectives.

The industry successfully navigated tariffs imposed during the Trump Administration’s first term. Why are the proposed tariffs such a big concern right now?

Tariffs on imported goods, especially from China, could strain supply chains, squeeze profit margins, and of course, drive up prices for consumers. The proposed tariffs—60-100% on Chinese imports and 20% on all other imports—60-100% are much more aggressive than those imposed between 2018 and 2020.

You might remember that during the Trump administration’s first term, the US imposed 10-25% tariffs on billions of dollars of imports, ranging from consumer electronics to apparel. Grocery and Drug retailers, while not the main focus of the tariffs, also felt the ripple effects. Across the board, those of us on the retail side leaned into private label products and adjusted inventories, and of course, began the search for alternative sources. Retailers of all stripes had to get creative. Large chains like Walgreens leaned into their private label offerings and adjusted product assortments to absorb higher costs. Amazon, with its global marketplace, contended with more complex challenges, including inventory changes and longer wait times for international shipments.

President Biden’s administration largely maintained these tariffs, also introducing some new measures, so doing business in a tariff environment is not new to the industry. The difference this time is the sheer magnitude of the tariffs being proposed.

We’ve already heard some of the major retailers warn that new tariffs could trigger eventual price increases. What does this mean for suppliers?

This is something suppliers need to prepare for now. The National Retail Federation forecasts that new tariffs could reduce annual consumer spending by $78 million. Categories like apparel, electronics, appliances, toys, and footwear could see double-digit price increases. Inflation and interest rates could be stoked further, with some predicting the core Consumer Price Index could go from 2.7% to 4%.

Retailers catering to price-sensitive shoppers, particularly in the Value channel, will struggle with passing on cost increases to their consumers. On the mass market retailer side, Walmart has said it will work with suppliers in an effort to keep prices low, in keeping with its “Everyday Low Price" mission.

Suppliers should be ready for major retailers to push hard for better deals. It will be critical to ensure that current items and new innovation demonstrates high value to get and stay on shelf.

Review current assortment to look at any product duplication or other supply chain consolidation opportunities that would drive efficiencies to mitigate price increases; take a portfolio approach to minimize tariff impact by shifting focus to brands that won’t be impacted because of their country of origin, including US-based domestically sourced goods.

What steps do you see retailer partners taking to prepare for the new tariff landscape?

While every retailer has their own individual strategy, we do see some common themes:

Stockpiling inventory. New tariffs could lead to higher costs of doing business, as well as supply disruptions and delays as products are rerouted from China to different countries before getting to the US, creating shortages. That’s why many retailers are preemptively front-loading shipments before the new administration comes in. While this approach lets them dodge tariffs early in the year, they’ll likely wind up with excess inventory and bumped up warehousing and shipping expenses.
Shifting supply chains. No surprise; one of the most notable trends among retailers is an accelerated push to diversify supply chains to reduce reliance on China as a primary manufacturing hub. Many are accelerating moves toward sourcing from countries like Mexico, Vietnam, Cambodia, and the US. For instance, Amazon has been steadily shifting its focus to Southeast Asia and Latin America sourcing, while Walmart has made significant process in increasing its domestic sourcing. In fact, two-thirds of the items that Walmart sells are made, grown, or assembled in the US.
Adjusting pricing and promotions. The Grocery, Mass Market, and Value sectors are particularly sensitive to price hikes, with customers already dealing with rising costs on food and household items. But retailers across the spectrum are bracing for the possibility of having to pass higher costs along to the consumer. Some may consider tiered pricing to offer more value options to shoppers without alienating budget-conscious consumers. Some, like CVS, Walgreens, Ulta Beauty, and Target, to name a few, may leverage their robust loyalty programs, offering targeted discounts or bundled deals, to help customers manage rising prices.
Strengthened Private Label Offerings: We expect private label products to play an even greater role as retailers look to control costs and safeguard margins. Walmart, Target, and others have historically leaned on private label to offer consumers budget-friendly alternatives, and we expect this trend to accelerate under looming tariff pressures.
Sku rationalization: Review current assortment to look at any product duplication or other supply chain consolidation opportunities that would drive efficiencies to mitigate price increases; take a portfolio approach to minimize tariff impact by shifting focus to brands that won’t be impacted because of their country of origin, including US-based domestically sourced goods.

Amazon has such a different operating model. Can you talk about the implications of high tariffs on China-sourced goods, and how they may be preparing?

With Amazon holding very limited inventory, price increases due to tariffs would hit the platform hard, forcing decisions on how to maintain both low prices and a healthy seller base. Some have suggested they tariffs might even reshape how 1) Amazon sources products, 2) negotiates with suppliers, 3) navigates its pricing strategies, and 4) impacts its seller fee model to stay competitive.

With the possibility of significant cost increases, Amazon also faces a challenging situation given the recent introduction of Amazon’s Haul shopping experience, dedicated to offering customers affordable prices on a wide range of everyday products. This new program is aimed at price-sensitive consumers and specifically designed to compete with Temu. Tariffs will create new, unplanned challenges for the retailer who’s trying to curate a wide assortment of lower priced goods for a specific shopper base.

For Amazon sellers, the impact will likely vary. Third-party sellers may struggle with price increases due to Amazon’s Buy Box algorithm rewarding competitive pricing. If costs rise due to tariffs, they may lose visibility to lower-priced alternatives from other sellers who may be sidestepping the tariffs. For first-party vendors, the uncertainty of the tariff situation makes it harder to plan as annual vendor negotiations are just beginning.

What are the top steps suppliers should be taking at this point?

Interestingly, newly released survey results reveal that while 81% of companies plan to bring their supply chains closer to home within the next three years, only 2% have completed their onshoring or nearshoring plans. For those companies that aren’t there yet, there are still concrete steps you can take to prepare for this shifting landscape.

Focus on price sensitivity. With consumers already grappling with inflation and rising costs, understanding the price sensitivity of your target consumer is critical. Make sure that you’re positioning your products in a way that emphasizes value, even if the price tag must rise.
Plan for disruptions. Supply chain disruptions are inevitable under tariff changes. Stay ahead by closely monitoring demand forecasts, tracking price surges in raw materials, and use tools that provide real-time analytics to balance inventory levels and avoid costly stockouts or overstocking.
Collaborate with retailers. Strengthen retailer partnerships to collaborate on pricing strategies, product assortments, and logistical solutions. Retailers will value suppliers who help them mitigate tariff impacts.
Explore private label opportunities. With private label gaining more focus, consider partnering with retailers to create bundled product offerings or other co-promotions that align with their strategies.
Address inflationary pressures. Be prepared to operate in a higher-cost environment. Factor rising costs into your forecasts and budgeting to avoid surprises; contingency plan for negative consumption projections, especially with premium-priced brands within your portfolio. Proactively protect bottom line impact based on the likelihood that consumers will shift away from higher-priced goods to lower-priced offerings.
·Diversify your sourcing. Goes without saying, right? If your business isn’t there yet, you’re not alone. While over 80% of companies plan to bring their supply chains closer to home within the next three years, only 2% have completed their onshoring or nearshoring plans, according to a newly released survey. Now’s the time to accelerate plans to secure alternative manufacturing sources.

Are there any watchouts for suppliers as they prepare?

A highly thoughtful and expedited approach is needed, given there are risks to any strategic move that must be taken into account. Stockpiling increases warehousing costs, while overstocking impacts profits. At the same time, out-of-stocks are costly from both a sales and customer retention standpoint. Shifting supply chains requires substantial investment and time. Pricing adjustments carry the challenge of potentially alienating cost-conscious customers. Also, transitioning into private label opportunities can require operational changes. So, a lot to consider when developing the right strategy moving forward. In the end, collaboratively partnering with retailers to focus on providing value for consumers will create a win-win-win for all during this potentially challenging new future.

Retailers are taking proactive steps to protect their margins and meet shifting consumer demands. Those who help them to deliver continuity and value to their customers despite the changes will win. If you’d like help in adapting your strategy to protect your bottom line when the new tariffs take effect, reach out to Jason Reiser, Jason.reiser@mpgllc.com or Todd Matherly, todd.matherly@mpgllc.com for further insights.