Good Day, It’s me, Johnnie Bosch. As a followup to my initial article, It’s a lot more than just Tariffs! Don’t screw this up! I will bring to everyone’s attention some numbers that we can attach and associate to some of the viewpoints we are hearing. This will address those viewpoints. Of course, positions may vary. The heading does have a direct meaning to the article. Honestly, as a new blog, we hoped it may grab your attention as well!
As always we hear the loudest voices, it’s time we hear some others.
In our current trade talks & spat with China, some costs have been impacted due to the additional tariffs. In many cases, the bulk of these increases have been absorbed throughout the links of the Supply Chain! That is a fact! Let’s point out a few realities.
Many of these reductions being absorbed from the supply chain has come from the China side.
They have been impacted much greater than the American companies that are importing from China.
The American consumer has felt little or no impact what so ever! Consumers costs and prices during the 2018 Holiday season and into 2019 have had no impact. Although we hear a slanted perspective, which is good! We have seen little or no evidence to justify the statement or position.
American manufacturers & importers in those categories being impacted will have a margin hit on their bottom line performance. Those additional costs will be loaded into the landed COGs ( cost of goods) and blended into the overall costs of doing business. I project these margin hits to range from 1% – 5%. This is a reality of doing business.
The smart play for Retailers and Distributors is to limit their exposure in importing until the dust settles and there is more clarity. It is much easier for them to force the hand of domestic brands and importers. I strongly suggest that they take this position in 2019. The domestic vendors both branded as well as the importers will be forced to absorb most of the margin hits directly. The competitive landscape will not allow it any other way. That will not change until the Tariffs hit a much higher percentage (25%). That is what will force the brands and importers to make a price move on the street. When this happens, the market will be forced to compensate for the cost increases across the categories affected. These increases will force the market to move and affect the retail price points. We are nowhere near that point yet.
If you are a major retailer or distributor who is already heavily invested in your own Private-label Brands, you have no choice. This may be the perfect opportunity to lean heavily on both your domestic vendor partners as well as your offshore vendor community. If presented and packaged correctly, you can offer a compelling story while forcing the best programs out of both sides. Allowing greater market flexibility & creating a flexible product portfolio and margin platform. The biggest issue which sounds silly maybe merging the 2 internal departments ( domestic & import purchasing teams & departments) into one cohesive fluid business unit. This appears to be a lot harder than one would think?
As we know from the reports of one major US retail CEO, when asked, the only effect on their holiday business was their ” direct import private label brands”. That impact was approx. 7%. Without saying too much, these categories are some of the higher gross margins SKUs in the business. The 7% impact on these goods should not be detrimental to their bottom line results.
I was taught, you must always run and operate your business on percentages and never dollar amounts. As we know, dollar amounts alone can be misleading. As we seen in some recent reporting, we are hearing figures of the Trade War costing US companies about an additional $1billion per month. That is a big dollar amount! What we do not hear is what is the revenue number that it is based on? Without that, the dollar amount means nothing. Let’s look at some numbers. See how impactful it really is. Let’s use these figures and keep it simple. Let’s say the total Tariff increase is $15 billion per year.
Based on a $200 billion industry it is a 7.5% impact. Based on a $250 billion industry it is a 6.% impact. Based on a $300 billion industry it is a 5.% impact. Based on a $350 billion industry it is a 4.2% impact. Based on a $400 billion industry it is a 3.75% impact.
I have had greater hits to my bottom line over the years from currency fluctuations, unstable vendors & market conditions. There is one guarantee, a BAD TREATY & TRADE DEAL will cost a lot more than that! We can’t screw this up! Where have I heard that before?
The one promise I can make to the American public. On Thursday, December 21, 2019, the cost of Televisions and other hot technology products will be less expensive, have upgraded specs and better feature sets than they did on December 21, 2018! Take that to the bank! Stop Crying Wolf! It sure tastes like Chicken.
I will be staying on focus and continuing to speak on this topic and updates as they arise. I will also introduce in the near future new articles from a more Geo-Political standpoint. This will help give insight and exposure to those who have a limited understanding of the complexities and the importance of this in moment time. Those storylines will have the following taglines. The Red Envelope Society. It’s a way of Life! Titans Beware! No Trespassing! China will destroy you! Xi for Life. A sign of Weakness & Concern or Strength! You may be surprised!
