6 Ways Retailers Will Fight to Keep Prices Low for the Holidays Despite the Tariffs
Literally no one wants to raise prices right before the holidays – and that includes your favorite retailers.
That's the bottom line on all of the tariff news as we head into the busy holiday shopping season this year. Higher prices would be just as much of a disaster for retailers as it would be for consumers, leading to lower sales, missed earnings forecasts, and angry shoppers. So while those shoppers are anxiously eyeing the headlines and considering adjustments to their budgets, retailers are busy looking for strategies to keep prices low at least until after New Years. Here's how they'll do it.
Tweak the product just enough that the tariff no longer applies.
Tariffs can be incredibly specific, which actually can make it rather easy for manufacturers to step around them. Let's say there's a tariff on sweaters that are made with a blend that is no more than 70% cashmere. No problem – you'll just bump the cashmere content up to 75% and voila, no more tariff.
Move manufacturing to a country where tariffs are lower.
On paper, one of the reasons a country might levy tariffs against products imported from a certain country is to encourage companies to manufacture elsewhere. In the case of the United States, the tariffs are supposed to make American-made goods more competitive, and that we'll see American manufacturing picking up the slack.
In some cases, the tariff has the intended effect – such as Apple's recent announcement that the company will begin assembling some MacBook laptops in Austin, Texas. However, many manufacturers will simply move their operations into a third country, such as Vietnam or Mexico.
Report tariff value at a different stage of production.
In modern manufacturing, it's not uncommon for components to be sourced from one country, and for the finished product to be assembled in another. So let's say that a product built in China is using component parts sourced from Indonesia. The importer can simply file its tariff documents at the Indonesian stage of the supply chain. The example is a bit oversimplified, perhaps, but the
Decline price increases from suppliers.
Retailers like Walmart and Target that have a lot of power in the marketplace told their suppliers months ago that they're declining all tariff-related price increases. That means the suppliers will be scrambling to tweak products or move manufacturing out of China instead, or they'll be forced to eat the cost themselves. The bottom line is that holiday shoppers at major retailers aren't picking up the tab.
Stockpile inventory before the tariffs go into effect.
Most stores don't have enough leverage to call their shots like Walmart and Target do. But we do know when the tariffs will go into effect, which means that companies with cash on hand can place orders with their suppliers earlier than usual to lock in pre-tariff pricing.
The flip side of this strategy is that it disrupts the usual inventory cycles, and there's a larger margin of error that comes with forecasting so far ahead of time. Combine the possibility of excess inventory after the holidays with the extra warehousing costs involved with early stockpiling, and you've got a recipe for some really sweet post-holiday sales. (You already know where to find the best deals online...)
Raise prices just a little right now instead of raising them a lot later.
As a last resort, some retailers will raise prices now to avoid sharper price hikes later. This distributes the cost of the tariffs over a longer time period, and while it does raise prices for shoppers, it makes those higher prices a lot easier to handle. Some stores may also raise prices on their inventory that's not from China to dilute the tariff costs even further.
Because retailers are taking steps like these to minimize the impact on your budget, we expect to see plenty of great deals throughout the holiday shopping season and into 2020.