Keeping up with tariffs can be maddening. The Supreme Court on Friday ruled against the implementation or continuation of many of President Trump's tariffs. Later Friday, the president signed a proclamation for a temporary global tariff of 10%. A post on Truth Social indicated the president's global tariff could be 15% instead.
If that sounds like uncertainty, imagine navigating these business waters as a company.
"Oh, it wreaks havoc."
Whatever it is, Boyd Evert is CEO of Bentonville-based Harvest Revenue Group, or HRG. His firm works with many large consumer packaged goods companies to recover lost revenue, streamline financial processes and prevent future losses. HRG serves as a sort of liaison between its clients and the largest retailers in the world.
Evert says a year's worth of tariff discussion and enforcement has been at the least unsettling for his clients.
Evert says his consumer electronics clients have been hesitant to pass costs associated with tariffs along to customers.
"When you think about it, they're in the part of the world where they're getting hit the hardest with the tariffs. But in the mindset of the consumer electronics supplier, they don't want to lose market share. And the margins are so thin that you can go upside down so quickly. One of the greatest fears — there are a lot of fears — but one of the greatest fears in consumer electronics is you'll sit on inventory. The typical life cycle of a major TV is usually 18 months from launch to clearance."
And any hiccups during those 18 months could mean selling items eventually for less than the cost of manufacturing them — not a methodology that is sustainable.
Evert says Friday's court decision may provide some initial solace. Although many consumer electronics interests have declined to pass along tariff-related costs at the retail level, consumers so far haven't felt a hit.
"But if you own stock in a consumer electronics company, you have felt that hit. So in that area, I would say for people who are investing or looking at their 401(k)s, those companies that play in that space will feel some relief."
Evert says the environment surrounding tariffs injects a new level of uncertainty into an already delicate atmosphere for many large and small businesses. Prolonged uncertainty, he says, can mean exponential challenges.
"We saw COVID expose how things can get upside down in the supply chain due to uncertainties. We had one client that had product in the warehouse — they had everything to make that product except the labels, and you can't ship that. The labels are the cheapest piece, and that prevented them from shipping. They were canceling orders because they were waiting for the labels to be printed. The American economy, the world economy, is so fine-tuned to just-in-time stock-keeping. You don't want to have any excess inventory on the shelf, in the back room or in your warehouse."
So he says when a supplier goes to a major retailer, that retailer is interested in the items, the price of those items and, importantly, how many of those items the companies think they'll be able to sell. Not surprisingly, such forecasts were decimated during the pandemic. Uncertainties like those associated with a pandemic or with tariffs can make forecasting difficult.
"It's as important to tell the retailer what we think your profit margin is going to be. Here's the suggested retail, here's the cost we're selling to. They're going to want to know what the turn is — how many weeks does it take to sell through what's on that shelf. And if it's saying it's a two-week turn and it ends up being a four or six-week turn, you could end up losing shelf space, which is like — you get into a death spiral when you start surrendering shelf space."
Evert says Friday's 6-3 Supreme Court ruling could provide some quick positives.
"You're basically having a situation — it's almost similar to when oil prices drop, right? Transportation drops, all that drops. But those are incidental fees; they're important, but incidental. When you're talking about the price it costs to make something, the price to manufacture something drops — to me, it's probably on a greater magnitude than the drop in oil. So I think it would be several orders of magnitude higher in impact from a fuel price decline versus the cost of goods. I'm cautiously optimistic that this is going to be a boon for consumers. But the old saying in the military is that a plan never survives first contact with the enemy. A pundit's opinion never survives first contact with reality."
The president's announcement that he plans to continue global tariffs through other means indicates there isn't an imminent arrival of certainty on the horizon. Evert says continued uncertainty could mean companies not currently paying tariffs might not be quick to let go of any immediate savings.
"Unfortunately, that's one of the downsides of having this continued conversation. Think back to during maybe the past two or three administrations where there was a lot of uncertainty — when you had the banks failing, the TARP funds and all of that. A lot of companies sat on money. They got cash, they got TARP funds, but they just didn't do anything with it because they wanted to see where things were going to go."
It does not appear there will be confidence one way or the other about the direction of tariffs anytime soon. On Monday, President Trump wrote on social media that countries wanting to alter tariff arrangements in the wake of the Supreme Court decision could end up facing even higher tariffs.
Our conversation with Boyd Evert, CEO of Bentonville-based Harvest Revenue Group and co-host of The Savvy Supplier podcast, took place Friday.
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