Did you hear that the head of Fast Retailing, the company that owns Uniqlo, has threatened to leave the US in response to onerous tariffs and a push to manufacture clothes in America?
Also, did you read in Modern Retail about DTC brands coping with the Trump tariffs? Not surprisingly, many brands were fearful and sought to move manufacturing away from China.
Does this sound like the same chatter going on around you at the moment?
Would it be interesting to discover that the Uniqlo story is from 2017 while the Modern Retail article is from 2019?
I think it is.
Here we are in 2024, under the threat of broad and increased tariffs. The alarms are going off again (and rightfully so) warning of disastrous consequences. With the inclusion of Canada and Mexico in the tariff talk, Trump is shaking up the snow globe of trade.
There is plenty of talk about what could happen should these tariffs come to pass. Also, much of the tariff talk is attributed to Trump forcing other nations to come to the table regarding specific issues.
However, that is not a reason to either downplay or ignore the potential implications.
Naturally, there is a certain level of anxiety.
And as such, companies are engaging in short-term scrambling.
One example is stockpiling goods and front loading imports before the tariffs become reality.
But, this carries certain long-term risks:
- Product does not sell through, leading to excess inventory and unplanned markdowns.
- Assortments lose appeal because the new, innovative stuff is delayed.
- Losing focus on the dynamic nature of the customer. It’s already hard enough to keep up with behavior shifts.
Further, cash that is tied up in inventory means cash not invested in other, critical areas of the business.
So, what should retailers be doing?
1 – Response over reaction. Avoid rash decisions to preserve short-term results over long-term growth a.k.a. borrowing from the future to pay for right now.
2 – Stockpile with care. The customer can be fickle, what’s hot today can easily be trash tomorrow. You need to consider if absorbing costs/increasing prices is more or less palatable than the cost of dealing with idle inventory.
3 – Continue to pull risk out of the supply chain. Many large retailers have been working to move out of China for some time and will continue to do so.
4 – Process innovation. Evolving how you get products to market will pay dividends in the long-term.
5 – Practice “Consumer Optimism.” The consumer is resilient and will spend provided there is a compelling reason to do so.
Regulating fear and uncertainty is difficult. Even more so when the conversation gets politically charged.
But, fear clouds our judgement and blurs the lens through which we look at the road ahead.
Uniqlo certainly did not act in fear. In fact, the number of stores in the US has increased since 2017.
It would make sense then to remove our collective glasses and wipe them clean.
We can handle the journey with greater confidence, regardless of what comes our way.
