As the noise about tariffs increases on a daily basis, some retail policy wonks began to search for historical perspective. Perhaps it was for intellectual thought diversion, but they soon realized that the wave of tariffs coming from the White House coincided with the final voyage of the famous American vessel the SS United States – which began a journey on February 19th from the Delaware River in South Philadelphia – to the west coast of Florida. When built, the 73-year-old ship was a true American manufacturing marvel. It was assembled in the USA with components from every state in the union. In fact, it was once deemed to be the fastest transatlantic ship ever built. The SS United States made its first voyage in 1952 and (over its life span) carried four U.S. Presidents including: Truman, Eisenhower, Kennedy, and (pre-president) Clinton. The ship retired in 1969 and spent the last 34 years tied up to a dock in downtown Philadelphia.
As the SS United States set sail (actually-set-tow) for it’s final voyage in February, the captain of the ship knew exactly where it was headed. The vessel will be scuttled as an artificial reef at the bottom of the ocean floor – off the west coast of Florida. For those who proclaim that everything needs to be made in America, this final journey likely symbolizes the end of a (perhaps) bygone era.
Unlike the RMS Titanic, the SS United States was in no rush to complete this last trip. There are no icebergs in the ship’s path, and the voyage was slow and steady. This, of course, was happening at the same time a Titanic wave was washing over the retail community – as the White House continued to flip-flop on tariffs – leaving consumers, business leaders, and retailers in a truly awkward position because they can no longer predict what lies ahead for product sourcing or for profitability. Essentially, many retailers have just lost their ability to plan – simply because the Trump Administration has made everything unpredictable.
There, of course, are some retailers who have been slow to react to the threat that tariffs have as an impact to their respective business, but there are many retailers who have expressed a higher level of anxiety. Using cautious language, the CFO of Walmart recently said (in a CNBC interview): “that while some two-thirds of Walmart’s products are sourced from the U.S., the company was “not going to be completely immune” from trade duties. The CEO of Best Buy said: “While Best Buy only directly imports 2% to 3% of our overall assortment, we expect our vendors across our entire assortment will pass along some level of tariff costs to retailers, making price increases for American consumers highly likely.” So, with all that being stated, the retail stage is being set for the tariff play – and everyone is asking whether we are in the opening act of a frightening drama or if we have reached the epilogue.
Retail’s January started with relative normalcy. Savvy merchants entered the pre-spring season with what we call “box mode” – which is the season before the end of the fiscal year, where some retailers fill the shelves with low-cost items to occupy selling space while, at the same time, cutting the cost of inventory. “Box mode” allows for plastic storage containers to be piled up to the ceiling or rows of paper towels to be arranged in an often-artistic manner leading the consumer to believe something special is happening (rather than just reducing the cost of inventory).
As “box mode” came to an end, some retailers began to feel that the prospects for the Trumpian retail economy were showing a degree of optimism. On one hand they feared for three items and hoped for one. The “hope” was quite easy – a huge tax cut would help both the retailer and the consumer.
The three “fear” items were concerning:
Fear #1 – was that Trumpian trade policies will raise the cost of goods – which would lower the rate of sale
Fear #2 – was that interest rates will rise and the cost to carry inventory would become prohibitive
Fear #3 – was that tough immigration policies would affect hiring and reduce the volume of store traffic in areas with large immigrant populations
Putting the “fears” in perspective. The pressing item for retailers was the ability to predict and to plan their business. They were suddenly not sure where to place their inventory orders or what their profit margins would be.
Consultants are constantly trying to help retailers with strategic positioning, but there are no easy answers and President Trump keeps breaking his own rules. If one looked to Mexico or Canada to operate (within the Trump initiated USMCA trade arrangement), the President has slapped and pulled and delayed a 25% tariff on his very own trade deal.
If a retailer is looking to procure internationally, the President will likely target countries with high USA trade deficits. One can only look to Vietnam’s 2024 data that shows that Vietnam imported $13.1 billion from the USA but exported $136.6 billion – leaving a huge trade deficit of $123.5 billion. To make matters worse, that number increased 18.1% from 2023 and Vietnam is often the second choice for sourcing product (after China).
Deficit stories will vary from country to country, so trade consultants are busy attempting to help retailers avoid land mines while, at the same time, they are looking at any potential for reciprocal tariffs. The other problem for retail management is directly related to forecasting profit margins. When the cost of a product goes up, it often gets multiplied throughout the retail ecosystem so, as an example, a $1.00 cost increase might end up being $4.00 at retail. One rule that retailers understand is that when prices go up, sales generally go down. When sales go down, profit margins erode, so retailers may start reserving funds to soften the blow of price increases. For an astute retailer, this environment is an absolute tight rope over a very steep canyon – a tight rope that nobody wants to walk.
So, in summary, retail’s difficult voyage, just got harder. In perspective, it was said that when the great HMS Titanic was sinking, the band continued to play – to keep the passengers calm.
Right now, because of tariffs, many retailers are just not calm and, of course, there was no band and no music playing – on the final voyage of the SS United States.
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