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It\u2019s becoming clear that \u201ctariffs,\u201d a word that just a few short months ago was more familiar to economic historians than the general public, has become shorthand for \u201ceconomic uncertainty and volatility.\u201d The tariffs themselves are disconcertingly fluid at the moment, with tariff types and amounts seemingly changing on a daily basis. And tariffs\u2019 strongest proponent, President Trump, may be losing his enthusiasm for them; the April 25 New York Times<\/em>\u2019 front-page story said Trump has \u201cblinked\u201d on tariffs after being faced with a number of economic realities.<\/p>\n These realities included warnings from the CEOs of Walmart, Target<\/strong> and other leading retailers who met with the President earlier this week, telling him that tariffs would lead to higher prices and empty shelves during key selling seasons such as back-to-school and holiday, according to MSNBC<\/em> and other media outlets.<\/p>\n In some ways, the uncertainty is worse than whatever the actual economic impact of the tariffs may end up being. Immediate impacts have included retailers filling their domestic warehouses ahead of the actual imposition of tariffs, a move that makes good business sense, according to John Harmon, Senior Retail\/Technology Analyst at Coresight Research.<\/p>\n \u201cIt\u2019s prudent for retailers to [fill domestic warehouses] during this window,\u201d said Harmon in an interview with Retail TouchPoints<\/em>. \u201cYou might have to discount later, but that\u2019s as opposed to waiting and potentially not getting enough product and disappointing customers<\/strong>. With such a high degree of uncertainty, it\u2019s better to stock up even if [tariffs force] a 10%<\/strong> margin hit now.\u201d He added that in most cases the math would continue to work even if retailers are later forced to discount these products in order to achieve sell-through.<\/p>\n Consumers also appear to be buying now in anticipation of higher prices down the line, although consumer sentiment and the reasons for making purchases are both tricky thing to measure. The National Retail Federation (NRF) quoted Census Bureau figures showing that March 2025 retail sales climbed 1.4% <\/strong>seasonally adjusted month-over-month and rose 4.6%<\/strong> unadjusted year-over-year, compared to 0.2% <\/strong>and 3.5%<\/strong> increases, respectively, in February.<\/p>\n While noting that we are still in \u201cunknown territory,\u201d Heather Rice, Tax, Consumer and Retail Sector Leader at KPMG, said during an April 9 webinar that \u201cwe expect consumers\u2019 wallets to be hit by $6,000<\/strong> [in extra costs] this year, and we\u2019re not even talking about electricity or car insurance rate hikes. It will affect lower- and middle-class households more, so how consumers and businesses respond will be critical.\u201d<\/p>\n Household budgets already are stretched thin, according to a consumer survey of 2,000 <\/strong>consumers and over 100 <\/strong>retailers conducted by Rakuten<\/strong>. \u201c36%<\/strong> of consumers can afford both daily expenses and non-essential items, but that means there\u2019s a huge swath that cannot, and they are now making strategic decisions regarding essential and non-essentials,\u201d said Julie Van Ullen, Chief Rewards Officer at Rakuten in an interview with Retail TouchPoints<\/em>. \u201c19%<\/strong> can\u2019t afford to pay their household bills and 17%<\/strong> can\u2019t afford necessities like food and gas.\u201d<\/p>\n Belt-tightening already has begun: \u201cWe\u2019ve already seen consumers cutting back, shifting to private label, buying chicken versus steak and forgoing experiences like restaurants, travel and concerts,\u201d said Harmon.<\/p>\n Even so, there are opportunities for retailers to encourage purchases in the short term. \u201cWe still need to meet a value-seeking consumer,\u201d said Van Ullen. \u201cThe question becomes, how can retailers get in front of the consumer right now with sales, discounts, offers and loyalty program benefits while they are in a \u2018buy now\u2019 mentality?<\/strong>\u201d<\/p>\n Cashback programs like Rakuten can be a useful tool as well: \u201cMany retailers think about cashback as a way to heighten promos and discounts, but we also have the luxury sector, which views us as a way to push full-price sales,\u201d said Van Ullen. \u201cThe mindset of many retailers is to use \u2018levers\u2019 like cashback to help.\u201d<\/p>\n Still, \u201cit\u2019s fundamentally clear that consumers are prioritizing price above all else,\u201d she added. \u201cIt\u2019s not just what they\u2019re going to buy, but where they\u2019re going to buy it. The across-the-board sentiment is that they\u2019ll buy their essentials at a place where they can get the most bang for their buck, even if that\u2019s antithetical to whatever brand loyalty they may have had before.<\/strong>\u201d<\/p>\n While an oft-stated goal of tariffs is to bring manufacturing back to the U.S., this remains a long-term result \u2014 and one that ultimately may not be viable, given the international interconnectedness of supply chains for raw materials, parts and finished goods.<\/p>\n Manufacturers also will have to contend with U.S. labor costs, which far exceed those in China and the other Asian countries that have become the source of much of the world\u2019s consumer goods production. \u201cThe cost of labor to build a television in Asia is about $300<\/strong>, but it\u2019s three to four times<\/strong> that in the U.S.,\u201d said KPMG\u2019s Rice. \u201cThe question becomes, will people pay $3,500<\/strong> for a [domestically manufactured] smartphone?<\/p>\n \u201cWithout substantial automation I don\u2019t know how we bring manufacturing back,\u201d Rice added. \u201cIt might be that even with high tariffs, it still could be cheaper to pay the tariff and import from a country like Vietnam rather than manufacture in the U.S.\u201d<\/p>\n Coresight\u2019s Harmon also noted that China directly and indirectly supports its manufacturing industries with free or low-cost loans, land grants and other benefits, and agreed that \u201cthe U.S. can\u2019t compete with the cost of labor [in China].\u201d<\/p>\n Additionally, \u201cyou need months or years to build a new factory as well as to train the technical people you\u2019ll need, so we also need to build trade schools<\/strong>,\u201d Harmon added.<\/p>\n Some brands already have made moves into tariff-friendly countries, as World Emblem<\/strong> has done with its planned Dominican Republic factory. And some of the supply chain diversification and nearshoring work that retailers and brands began with the onset of the COVID pandemic is still ongoing.<\/p>\n However, until these initiatives begin to bear fruit, retailers will be stuck with the same dilemma: raise prices to cover tariff-generated costs and risk losing customers, or \u201ceat\u201d the costs and see their margins shrink or disappear altogether. At the moment, alternatives to these scenarios are, you\u2019ll pardon the expression, in short supply.<\/p>\n<\/p><\/div>\nStocking up Ahead of Tariff-Spawned Price Hikes<\/strong><\/h3>\n
Major Hit to Consumer Wallets<\/strong><\/h3>\n
Encouraging Sales Now Before Prices Rise<\/strong><\/h3>\n
As During COVID, Supply Chain Diversification Remains Critical<\/strong><\/h3>\n