Imports are costing more and reducing profitabiity for many companies.
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U.S. tariffs are taking a toll on U.S. business, according to a survey of senior executives released yesterday by KPMG.
About one in three report declining or deferred sales tied to tariffs while nearly all (97%) say they’ve seen no sales increase at all. Almost 40% report shrinking gross margins.
The harm isn’t limited to imports. Other countries’ retaliatory tariffs hurting U.S. exports with a majority of companies reporting sales declines in foreign markets of 6-25%.
Rising Prices And Inflation Pressure
The survey says that two-thirds of companies have passed through up to half of their tariff costs to consumers and 21% have passed on more than half — up sharply from just 13% in July.
Looking ahead, 42% of executives expect to raise prices by up to 5% over the next six months and 29% anticipate increases of 6-15%.
The Uncertain Outlook Ahead
Most companies are talking about bringing manufacturing back to the U.S. but it’s going to take time. Almost half of the executives say that kind of move will take 1-2 years to accomplish and almost one-third say it will take 2-3 years. And 77% don’t report feeling fully confident in the stability of current U.S. tariff levels.
Without confidence in stability, companies are not going to commit to long-term investment in domestic production.
Even more troubling, 44% expect the uncertainty to continue over the next year.
The effects are already visible. Hiring has been paused by 38% of the executives, 29% have reduced their U.S. workforce by 1-5% and 15% of the executives say they have reduced their headcount by 6-10%. Historically, nothing scares consumers to halt discretionary spending more than fear of unemployment.
The Impact On Retail
Consumers will see higher prices this holiday season.
Employers are not feeling expansive, they are either laying people off or not hiring aggressively. Employers are also hesitating to make capital commitments in their businesses.
That’s a problem for holiday sales. When shoppers see higher prices on shelves and feel increased job anxiety, they ask themselves, “do I really need to buy this?”
So it’s a weaker environment for discretionary spending than we’ve seen in a while.
Most retailers and brands have been cautious about inventory commitments for this holiday season so we’re unlikely to see huge overstocks or deep discounts to move unsold products. Retailers’ are prioritizing risk management over chasing maximum profitability because of the uncertainty in the environment.
Retail thrives in a stable environment. But as long as executives are blindsided by sudden uncontrollable shifts in their operating environment, brands have to stay defensive — limiting inventory, slowing hiring and protecting profits with higher prices.