Retailers rush imports, accelerate supply chain diversification to get ahead of Trump tariffs

The insight: Retailers are rethinking their supply chains in the wake of the US presidential election as they seek to avoid additional tariffs of 60% to 100% on imports from China and 10% to 20% on all other imports.

Short-term solutions: In the near term, companies are hoping to minimize their exposure to potential tariffs by pulling forward as many shipments as they can. While that would allow them to evade tariffs in the early part of the year, it could lead to inventory gluts and elevated warehousing and shipping costs.

• New import rules could hit as soon as late February, shipper C.H. Robinson told clients, fueling a surge in interest from companies looking to front-load inventory shipments.
• Honour Lane Shipping expects companies to begin pulling inventories forward as early as the first half of December, it said in a client advisory.
• Stanley Black & Decker is among the retailers preparing to stockpile inventory “for a number of reasons, not the least of which is tariffs," an executive said during the company’s investor day.
• Smaller companies like Bare Botanics and Stone Fleury are also purchasing as much inventory as they can afford to hold off the impact of tariffs as long as possible, their owners told The Wall Street Journal.

But stockpiling goods comes with significant risks, as underscored by Target’s poor Q3 performance, which the retailer attributed partly to its decision to bring in more inventory ahead of the ILA port strike. That led to higher supply chain costs and overstocked stores—and the company’s worst earnings miss in two years.

Looking long term: President-elect Donald Trump’s tariffs are forcing retailers to reconsider their reliance on Chinese manufacturing and accelerate plans to onshore or nearshore production.

• 81% of companies plan to bring their supply chains closer to their home markets over the next three years, per a Bain survey—a sharp increase from the 63% that were planning to do so in 2022.
• Steve Madden, Yeti, and Traeger are among the many companies looking to diversify their manufacturing away from China and into countries like Cambodia, Vietnam, and Mexico.
• However, imports from those countries will also be subject to tariffs, per Trump’s proposals—and he has threatened to impose tariffs of between 25% and 100% on imports from Mexico if it refuses to close the border.
• To add to retailers’ challenges, diversifying is a long and expensive business: Just 2% of the respondents to Bain’s survey have completed their onshoring or nearshoring plans, while 36% are in the planning stage and 23% are still evaluating their options.
• And few countries can match China’s manufacturing expertise and efficiency—considerations that could keep retailers tied to the country regardless of tariffs.

Our take: Retailers have made considerable strides in futureproofing their supply chains—but those efforts could be upended by new tariffs, not to mention the looming threat of another port strike.

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