by Conversations with sources show just how disruptive the issue has been
HIGH POINT — Conversations before, during and after the April High Point Market offered a glimpse into the disruptive nature of tariffs. The view was not pretty as it uncovered all sorts of challenges to an industry that’s been trying to rebound from the disruptive environment post-Covid as retailers have struggled to get foot traffic and sales in their respective markets.
A clear theme was that businesses and the marketplace in general do not like uncertainty or unknowns, which is exactly the recipe for disaster the current tariff environment has presented.
Many told us that tariffs were not a big part of their discussions with customers at market. But that’s only because most people in the industry are trying to stay focused and plan ahead for the fall selling season with as little publicly voiced concerns or negativity as possible.
Thus, some conversations we’ve had with industry sources about the disruptive nature of tariffs have been as background only. Yet because of their revelatory nature, it’s worth repeating some anecdotes here to help put things in perspective and also understand how it affects the industry at large.
For one, several sources described the tariff situation as an on-again, off-again scenario that makes it nearly impossible to plan for the future, particularly when it comes to quoting prices.
“He is destroying our industry,” one source, who identified himself as a Trump supporter, said recently. “Maybe some others are doing OK, but he is f…ing with our industry. We have had two to three years right after Covid that have been s…. And what does he do? He pours gasoline on the fire. To me he is not being helpful. … The uncertainty is what kills you.”
The uncertainty this source is referring to in particular largely has to do with not knowing how to price your finished product. Of course, this is the magic number that customers and consumers feel comfortable paying, signifying the ultimate value the product represents.
As one source noted, it’s a process that starts many months before the product is shown at market, from when it’s being developed from a CAD image, or rendering, to the selection of materials, hardware and finish.
“When you do product development and negotiate the cost and prepare for market, all that stuff is done nine to 10 months ago,” the source noted during a visit to her company’s showroom at market. “It takes time to get to this point in life. And when you are doing this, you say to yourself, ‘Ok, it’s going to do well at this retail price point’ and you do all your development and design so it hits a price point.
“It has to be a value for the buyer to say, ‘Hey that’s a good deal.’ Or ‘Oh really? That’s the price?’ And that’s when they say ‘yes.’”
“Now all of a sudden, I didn’t plan — none of us planned for this extra stuff. And then suddenly ocean freight went up, so it’s a domino effect. So suddenly, we are going into market with unplanned numbers. Nobody likes that. Nobody likes that in business.”
Dealers also come into market armed with an open-to-buy mentality, which not only determines what type and how much product they are able to shop, but also to the types of commitments they can make. Thanks to the uncertainty that tentative tariffs create, the whole shopping process can derail quickly, ultimately delaying those commitments for weeks, if not longer.
“It is unplanned expense,” the source noted of the unknown numbers tariffs still represent relating to product sourced in Asia in particular where most case goods and an increasing amount of upholstery is produced. “Tariffs don’t have terms. It comes into the port and you’ve got to pay. They don’t give you terms.
“So if you don’t have extra cash flow sitting around to pay because you have spent all your open to buy after you have placed POs, how will you afford future tariffs if you don’t know what it is?,” the source added of the current 10% tariffs that could end up at 15%, 20% or more, depending on the country. “You have to budget for that because the tariff has to be part of your open to buy.”
Some retailers have responded in a similar fashion as they did during Covid, which is to load up on inventory available at pre-tariff pricing. It’s a good strategy, at least until that product runs out, which has happened for some companies sooner rather than later.
The question then becomes how quickly can companies shift sourcing, particularly outside China, where tariffs for the time being remain the highest at 30% compared to 10% everywhere else. And with the 10% rate for other countries, no one really knows how much that number will change pending further negotiations.
Thus, shifting to other lower-rate countries has become a necessity for many, although it does not happen overnight.
“We can’t relocate that fast, because this thing happened without warning,” the source noted. “There was no grace period.”
Another challenge? Companies are all vying for the same production outside China, whether it’s in Vietnam, Malaysia, Cambodia or India, for example.
“We are all fighting for capacity,” the source said.
Also, certain materials, such as metal, glass and stone, also are primarily in China, which has a workforce that is trained to craft those materials into the finished product. While some factories in other countries are vertically integrated and can work with those materials, it will be a learning curve for others, the source said.
“It takes time for them to bring the material to ship from China to Vietnam. It’s not like they have it in their warehouse. So you have lead time added. And you have got inexperienced workers. So the efficiency of a China factory, if they can push 20 cans out a day, Vietnam is going to have half the efficiency even in the same size factory with the same amount of workers. The efficiency isn’t there yet. It takes time for them to get experience.”
The entire situation, most notably regarding pricing, caused some pause particularly on putting certain product into production, whether it’s a sample or an initial cutting.
“If I am told it is going to stay at 10%, I would have pulled the trigger on some things. But it is difficult to plan. You are waiting for customers to tell you what they want to do.”
That said, the source noted that some larger customers verbally committed to some product and are eager to know when it is expected to land in the U.S.
However, tariffs not only caused challenges for importers, but also for domestic producers that rely on imported materials, including fabrics from China that originally faced a 145% tariff only to see it reduced to 30% around May 14, about two weeks after market ended.
Yet the 145% China tariff was announced right before market, causing significant upheaval for upholstery producers just heading into market.
“I spent another seven days a week for the next few weeks re-costing every single item in that showroom,” one domestic upholstery manufacturer told Home News Now. “But that was something I couldn’t control. So what we are doing here is focusing only on what we can control and what is in front of us. We will stay nimble.”
How each company accomplishes that will require any number of measures ranging from temporary surcharges or price increases to further development that cuts costs out of the equation without raising prices or sacrificing quality. Unfortunately, it’s obviously taken a lot of short-term anguish to get to this point.
Let’s just hope when the final tariff numbers come in they are something the industry — and consumers — can bear. With hopes that interest rates are about to turn the corner in a way that spurs existing home sales, no one is wanting tariffs to price the industry out of the market.
