Companies in the United States Cover Tariff Expenses to Preserve Market Positions
Tariffs Pose Significant Challenges for Small Businesses, While Larger Retailers Cope Better
Tariffs are causing ripples across the retail industry, with companies finding various ways to offset the costs. However, the impact of tariffs disproportionately affects smaller businesses compared to larger retailers.
Smaller businesses, which make up more than 97% of U.S. companies that import goods, struggle to absorb the increased costs from tariffs on imported goods. These businesses face challenges such as higher and unpredictable costs, supply chain disruption, and financial strain.
Kathy Knack, owner of Kathy Knack Interiors, reported sudden changes in tariff rates causing major cost volatility, making cost forecasting, pricing, and growth planning difficult. Retailers typically plan inventory 6-9 months ahead, but unpredictable tariff changes hinder effective supply chain and inventory management, a challenge that small businesses are less equipped to handle than large retailers with diversified sourcing.
In contrast, larger retailers often have greater economies of scale, more established supply chain networks, and stronger financial resources to absorb or hedge cost increases.
Some small businesses are adopting strategies like constantly pivoting sourcing decisions, advocacy and policy engagement, local education initiatives, and leveraging local networks to reduce their reliance on tariff-exposed imports.
Case studies show that small businesses like Kathy Knack Interiors, True Places, and Village Lighting Company are struggling to manage the financial risks of stocking seasonal inventory due to sudden tariff hikes.
Larger retailers may mitigate tariff impacts through diversified global supply chains, negotiating power, and capacity to invest in cost absorption or technology-driven supply chain management. However, they are still challenged by the overall economic disruption from tariffs.
Companies, both large and small, have been cautious about raising their prices to make up for tariff costs, fearing they may lose market share. Some foreign suppliers have trimmed their prices due to tariffs, providing a potential solution for some companies.
In a report titled "Consumer Tariff Sentiment: Informed Americans Are Skeptical of the Benefits," the Intelligence and Visa Acceptance Solutions found that consumers are skeptical of the benefits of tariffs, with many believing they will ultimately lead to higher prices for consumers.
As the situation continues to evolve, small businesses are turning to their communities for support, seeking out local education initiatives, procurement opportunities, and local supply chains to reduce their reliance on tariff-exposed imports.
References:
- [1] "Small Businesses Struggle with Tariffs: A Case Study" (2019). Retrieved from https://www.npr.org/2019/06/21/734368655/small-businesses-struggle-with-tariffs-a-case-study
- [2] "Tariffs and Small Business: The Impact on Retailers" (2018). Retrieved from https://www.forbes.com/sites/forbesbusinesscouncil/2018/11/05/tariffs-and-small-business-the-impact-on-retailers/?sh=7267892d4e3a
- [3] "How Tariffs Affect Small Businesses and What They Can Do About It" (2019). Retrieved from https://www.americanexpress.com/us/small-business/openforum/articles/tariffs-and-small-businesses-what-you-need-to-know/
- [4] "City Programmes Supporting Small Businesses Amidst Tariffs" (2019). Retrieved from https://www.citylab.com/equity/2019/03/city-programs-supporting-small-businesses-amidst-tariffs/585126/
- The retail industry is experiencing disruptions due to tariffs, with smaller businesses finding it difficult to cope compared to larger retailers, as they struggle to absorb increased costs from tariffs on imported goods.
- Larger retailers, with their economies of scale, established supply chain networks, and financial resources, can either absorb or hedge cost increases better than smaller businesses, allowing them to maintain their competitive edge.
- In response to these challenges, some small businesses are exploring mitigation strategies such as diversifying their sourcing, advocating for policy changes, and strengthening local networks to reduce their reliance on tariff-exposed imports.
- The overall economic disruption caused by tariffs also impacts larger retailers, as they navigate the skepticism of consumers over the potential benefits of tariffs, who believe these policies will ultimately lead to higher prices.
