All of us in the retail space have been paying close attention to the NAFTA renegotiation talks. I’ve long been a believer that free trade is important for retailers in the U.S., because it improves the economy by boosting jobs, improving product quality and opening up new markets. We saw what happened when the United States pulled out of the Trans-Pacific Partnership (TPP) earlier this year. Just this week, the rest of the nations in that deal agreed to a new partnership that left the U.S. out, with a potentially enormous negative impact on U.S. brands and retailers. One Washington Post headline put it succinctly: “‘America first’ looks more and more like ‘America alone.’”
Across the board, retailers support keeping NAFTA in place, though there is agreement that improvements to the deal are welcome. The apparel industry is particularly vulnerable, as Canada and Mexico are huge markets for U.S. textile producers, and Mexico is the largest Latin American supplier of apparel products to the U.S., according to Bloomberg. The National Retail Federation cites higher consumer prices, job loss and lower product availability as just a few of the consequences of a NAFTA withdrawal.
The current administration has made bold statements about trade agreements already, so it’s tough for retailers to predict what might happen. Here’s where the ability to run “what-if costing” scenarios quickly and easily plays a huge role in mitigating the risk of a NAFTA collapse. “What-if” and “any market” costing help retailers and brands in three key ways:
1. Automatic updates on trade changes: It can be challenging to stay apace with the news cycle, but with what-if costing through Bamboo Rose, retailers are automatically integrated into the government’s Harmonized Tariff Schedule (HTS). If there are any sweeping changes made to taxes and fees, you know within the platform – without having to check into it manually – and avoid being caught unaware.
2. The ability to plan the product delivery strategy more accurately: Retailers can simulate various scenarios – what if we can’t source cushion fabric from our Nicaraguan factory and have to rely on Bangladesh? – quickly and accurately without a lot of manual calculations required. Unless a what-if costing platform is used, strategic planning of this nature is relegated to guesswork.
3. A wider, more diverse supplier base: Onboarding suppliers takes time and energy, and can be extremely risky. Therefore, many companies avoid working with the more risk-prone suppliers that may be able to give them a better price. With what-if costing, retailers have the ability to calculate the risk and institute a Plan B, making what may seem like risky supplier relationships more certain. Ultimately, this visibility allows retailers to increase margins through a broader supplier base and lower prices.
No one can accurately predict what the Trump Administration will do with NAFTA, so it makes sense to prepare for any possible decision. Having a platform that handles global sourcing digitally and incorporates “what-if” and “any market” costing makes international trade – and growth – much easier.
Trade in retail is complicated and ever-changing. Our CEO, Sue Welch, has more to say about it in Supply & Demand Chain Executive.