The U.S.-China trade war is bringing uncertainty, fear and potential insolvency to retailers
Uncertainty is the enemy of retailers and consumers alike, and we are living in a world of complete economic uncertainty as the U.S. president’s trade war with China waxes and wanes. The risks are real. And there are unintended consequences that have scarcely been discussed. These consequences include the implications of retailers stocking up on inventory in advance of threatened and actual tariffs. My goal is to discuss those unintended consequences here.
This may be a boon for companies like TJX, Burlington and Ross Stores; most of their products are bought domestically, after the tariffs have been paid by others, but they will not be immune to some level of gross margin pressure, along with their own uncertainty around how much to buy., a retail liquidator and investor, gives us some real insight.. The report points out that import volumes have become “lumpy” and different from historical levels at the ports of both Los Angeles and Long Beach.
I have worked for retailers that were thrown into Chapter 11 when their inventory dropped too low for their ABL covenant. And Circuit City was famously thrown into instant Chapter 11 at the worst possible time—right before the holiday season—when its lender decided its sales would not reach expected levels, and increased its inventory carve-out. You won’t find this in many of the articles on “what happened” back in 2008, but it’s not really a secret. That’s all it takes.
Of course, the president’s exhortations to “find other places to buy,” given the current environment, kinda sorta makes sense. And groups like thecan certainly support those activities. It brings brand managers and factories in the Western Hemisphere together, and assuming the retailer/brand manager can support a more flexible sourcing model, it’s the way to go. Companies like Nike, Fruit of the Loom, Jockey, Macy’s and others already participate in this group at some level.
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