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Tariffs: What Retailers Need to Know

In the face of this immediate challenge, forward-thinking retailers are acting decisively to stay ahead.

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Tariffs: What Retailers Need to Know
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Tariffs are no longer a distant policy debate; they are a high-stakes reality. This shift from globalization to protectionist policy creates new complexities for retailers, such as rising costs and harsher consequences for missteps in forecasting or strategy.

While there will be significant variation based on the exact tariffs and the unique position of each company, retailers in home goods and apparel likely face the most gross margin pressure due to their heavy exposure to foreign products. It will be especially critical for apparel players to negotiate pass-through costs, given their heavy reliance on imported goods from intermediaries.

Revenue will take a hit unevenly across sectors. Due to their discretionary nature, home and general merchandise could see volumes fall as consumers react to higher prices. Grocery may fare better than other categories, but isn’t immune—especially high-end grocers, which may face meaningful pressure from consumers trading down. Beyond P&L statements, balance sheets will be under strain, with working capital and inventory turnover becoming critical stress points.

How can retailers respond? Leaders are acting decisively on immediate priorities while building long-term resilience.

Act now:

  • Monitor trade flows and tariff exposure. Identify your most vulnerable suppliers, assess the financial effects, and establish processes to pivot as scenarios evolve.
  • Optimize merchandising. Pass through costs strategically, considering each product’s role, price elasticity, and the lingering effects of inflation on consumer sentiment. Refine your product offerings, and lean on targeted promotions that emphasize consumer value.
  • Prepare for supplier conversations. Start the dialogue early to lock in prices, and use data-backed negotiation to mitigate tariff pass-through. Collaborate to redesign products, pack sizes, or assortments in ways that minimize tariff exposure and costs.

Plan now:

  • Modernize your supply chain for resilience. Build end-to-end supply chain visibility with investments in automation and internal processes. Diversify operations through a combination of multisourcing, right-shoring, partnerships, and M&A.
  • Invest in operational efficiency. Reduce selling, general, and administrative expenses to offset higher product costs. Embed tariff considerations and mitigation strategies into your capital planning.

Retailers that make these no-regret moves now can thrive in a post-globalization economy.

Related

Tariffs: The Costs of Inaction

Trade levies are more than a headline. As tariffs tighten their grip on global commerce, companies must act decisively to mitigate risks and seize opportunities.

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