There are many ‘what if’s’ for retailers – what if my shipment doesn’t make it on time? What if new regulations increase my costs? With a new administration taking office in the U.S. and rhetoric around raising tariffs on imported goods (though no specific policy proposed), many retailers are asking, “What if it happens? What if my prices go up? What if retaliatory tariffs are levied on imports? How do I manage the uncertainty?”
A potential tariff on goods crossing the border into the U.S. would complicate relationships with international suppliers – perhaps even making those partnerships financially untenable. The potential of increased import costs combined with the government’s proposed incentives for U.S. manufacturers has led some foreign brands to consider leaving the U.S. – most notably the Japanese apparel company Uniqlo. Tadashi Yanai, chairman and president of Uniqlo’s parent company Fast Retailing Co., said that the decision to withdraw from the U.S. if high tariffs were enacted was made with both the company and the customer in mind, as a tariff would raise costs not only for Uniqlo, but also for people who shop there.
What if the tariff is implemented?
Not every company can or wants to vacate the U.S. in the face of high tariffs, but those wishing to stay need to be prepared for any eventuality that could impact costs. To answer any big “what if” question, retailers need to reframe their sourcing philosophy. In general, retailers tend to focus too much on the initial cost when purchasing goods from abroad – that is, what their supplier is charging – and don’t have visibility into the full cost until after the deal is done.
“What if” costing provides an accurate snapshot of how a retailer’s demand is distributed across the world and helps find the right strategic balance to inform large decisions. With this model in place, retailers can weigh the landed costs that could be influenced by a variety of factors, including (but not limited to):
- Tariff variability
- Transportation factors
- Third party fees
- Product destination
If the tariff is implemented, retailers will need to account for trends around commodity pricing, currency fluctuation, spread of volume across multiple suppliers and other factors that affect margins. Comparing multiple offers from suppliers in different countries where the taxes are levied, and juxtaposing these costs across multiple levels will become the norm. In broadening their supplier base, these retailers will not only be able to bring great products to market without increasing headcount, but will also be able to use analytics more accurately to inform their decision-making, and lead to better overall margins. In addition, comparing component-level pricing across multiple offers will allow retailers to see what they paid for similar items in previous seasons, which would in turn prepare them to better negotiate in the future.
Retailers who apply the “what if” costing approach could experience up to a 35 percent impact on their margins, and up to a 70 percent reduction in administrative costs. This method also mitigates the risks that come along with fluctuating currency, geographic or political issues and labor hazards.
What if there was an easy solution?
Without advanced technology, retailers are stuck using outdated manual methods like excel to manage their costs – and often, they skip the “what if” costing process altogether. This is a dangerous approach; instead, retailers should invest in technology that provides them full visibility into all possible variables to make fully informed and accurate decisions. Bamboo Rose allows retailers to see all information from different suppliers on a single screen before even thinking about costing. As a result, it’s easier to assess the “what if” scenarios for each option before making a decision. With new formulas updated in the software each quarter, Bamboo Rose simplifies the complexity that goes into global trade and purchasing, saving time and effort for retailers.
The bottom line is this: The world is an uncertain place, and as a retailer, you can’t afford to be in the dark on what your true landed costs are.
Your company can go live on day one to handle growth challenges and implement “what if” costing. Read our latest white paper for more info.