On March 1, the current US tariffs on Chinese imports were scheduled to jump from 10% to 25%, but a few days before the President announced an extension of the 10% because talks were going well. As of the first of March, according to an article by April Joyner of Reuters furniture and accessories such as handbags and luggage are subject to the 10% tariffs. Apparel and footwear are excluded. Hopefully by the time this blog is seen the talks went very well and tariffs do not apply.
A significant portion of US consumer goods including 72% of footwear and 84% of accessories originate from China according to the American Apparel and Footwear Association.
Given the tariffs, no company sought to bring back production to the US, rather they have looked at other countries such as Vietnam and Bangladesh which have their own costs associated with them.
Companies have incorporated the cost of tariffs in their guidance for the year, said Charles East, equity strategy analyst at SunTrust Private Wealth who covers retailers.
If there is a rollback of tariffs, which would be a good thing, companies have tried to mitigate the tariffs by increasing production and storing the goods, now they will have a cost for storage. In a just in time supply chain, the retailer tries to do as little storage of supplies as necessary. Retailers had increased the amount of goods they have in storage which lead to US ports handling almost 2 million containers, an increase of 13.7%. This increase in warehousing will cut into profit margins.
The US Commerce Department reported retail sales decreased for the first time in 9 years and warehouse inventory increasing. Companies such as Macy’s and TJX have hinted at the potential for an uptick in discounted goods.
Linking to dividend paying stocks, just in time inventory systems work until they do not and then there are few options to reduce costs. All companies try to determine what works best for them, examining the supply systems allows you to determine some factors that will affect the margins. When the systems all work, it is hard to fault it, but when they do not, there are few alternatives for changes except for different government policies and that takes time.
There are more questions than answers, till the next time – to raising questions.