Retail And Consumer Are Hanging On A Cliff’s Edge Right Now

It’s not hyperbole to say that the retail and consumer industries have never been in as precarious a state as they are in right now.

Depending on who you ask, orders for the back-to-school season are nearly done being placed with suppliers abroad. Wholesale orders for the Christmas/Holiday season, which now begins for consumers as early as September, will be mostly complete in the next four to six weeks.

Because of tariff confusion, volatility and paralysis, there are three schools of thought about what U.S.-based, consumer-related businesses are doing to deal with it. Some placed orders immediately after President Trump took office to avoid any problems with tariffs. But those are products that are basic, like a white shirt. Most other products have more risk and can’t be ordered that far in advance.

Some companies placed orders and let the product sit in China. Right now there are thousands of containers on docks in China ready to be shipped but are being held to see how the tariff situation works out.

But most of the suppliers I talk to are holding off. They can’t afford to receive products that they know can’t be sold at anything approaching their costs given the tariffs.

The problem is time. If orders aren’t placed soon, there will be shortages and empty stores for consumers starting in the fall. The next 30 days are the critical time for something to happen so that orders for fall can be placed.

Trade Agreements

You may be reading that we’re close to signing trade deals with a lot of countries. That would solve the problem but a look at history would be instructive. The fastest any trade deal between the U.S. and any other country was made was four months with Jordan and it was initiated personally by then-President Clinton and King Abdullah of Jordan in 2000. With initiative coming from the top on both sides, it got done quickly.

The average time for a trade deal to get negotiated is 18 months. Implementation can be immediate but it rarely is. Implementation usually happens over a period of years.

Here’s a table of significant and typical trade agreements and their timetables for negotiation and implementation:

If we are waiting for a trade deal to allow companies to make decisions about inventory for later this year, it’s not going to solve the immediate problems we’re facing and products won’t come to stores before they’re needed this year.

If that happens, there will be many, probably thousands, of bankruptcies of brands, wholesalers and retailers.

The consumer world will become a battle of balance sheets. Whoever has the most equity and cash will survive and everyone else will be bankrupt or sold for what would be called in other industries their “scrap value.”

Exemptions

The consumer electronics industry has gotten an exemption from the reciprocal tariffs on smartphones, laptops and other related electronic devices. The exemption is not permanent but it mitigates some of the risk that other consumer products are facing.

About 86% of such consumer products are imported and their ability to move manufacturing to the U.S. is remote or at the very least will take many years to happen.

What’s even less likely to be reshored to the U.S. is the manufacture of apparel, footwear, accessories, children’s toys and many other consumer products. Those are the items that can’t be ordered now and won’t be on shelves starting in the fall. They can’t be moved to manufacturing in the U.S. because of labor costs and the skill sets that don’t exist in the U.S.

Because they are lower skilled jobs, one can’t help but wonder why we would want to bring that manufacturing back into the country. Those jobs can never be more than the lowest-paying and increasing the number of those jobs is not how average incomes and overall prosperity are grown.

What’s needed is an exemption for the consumer products and fashion business. Without it, there will be a calamitous result for the industry and the cascading impact on millions of households. It’s not just consumers who won’t be able to get the products they want, it’s companies that will go out of business, their suppliers who will be affected and their employees and customers who will lose their jobs.

All of that will happen as the price of the goods that are in the stores will inevitably go up as the supply shrinks.

One Bright Spot

There is one bright spot in the consumer universe in the face of tariffs: resale. Buying second-hand or thrift or resold merchandise faces no tariffs. It’s also environmentally friendly since it creates virtually no waste and it’s sold at a lower price than new products. Consumers, especially younger consumers, want resold products and it’s trending. If tariffs stick and all the bankruptcies and unemployment we can expect happens, one consolation will be growth in the resale business.

Consumers Get It

Consumers understand that if the tariffs stay in place, there will be fewer goods in stores and the prices will be higher. They are stocking up now. According to Pass-by, a retail data company that monitors foot traffic and other data, on the weekend of April 20th, foot traffic in stores grew year-over-year by these amounts:

Department stores 2.9%

Book stores 4.9%

General merchandise stores 7.0%

Home furnishings stores 10.8%

Jewelry, luggage and leather goods stores 14.9%

Sporting goods, hobby and musical instrments 11.4%

Clothing stores 7.2%

What’s Needed Now

A women’s fashion company called Lafayette 148 says its tariff bill will go from $2 million to $33 million. That’s not a survivable increase and is likely to cost lost business and lost jobs. That will cascade through all their suppliers and their employees’ incomes.

The consumer products industry that can’t be reshored to the U.S. needs a reprieve from the destruction that will happen if the tariffs remain in place. Action needs to be taken now.