TARIFFS: ADAPTING THE MENSWEAR BUSINESS TO A POLICY OF TARIFFS
Independent retailers face the challenge of adapting to new economic policies. The potential increase in tariffs proposed by President-elect Donald Trump has stirred the waters for retailers and wholesalers alike, raising concerns about the impact that such measures could have on demand and pricing strategies. With tariffs on Chinese imports anticipated to rise to as much as 60%, up from their current 20% to 25% rates, and expecting similar tariff increases for trade with other countries, retailers need to brace themselves for huge potential shifts in market dynamics.
As we stand on the brink of these changes, it is crucial for businesses to strategize and adapt proactively. This is why I have compiled a comprehensive guide to help retailers navigate these murky waters effectively. In the following, we will delve into actionable strategies to safeguard your retail business amidst tariff changes, emphasizing key areas of focus and action steps that will propel you towards sustainable growth.
Review your Data
Compare year-over-year sales, units sold, transactions, and average sales per customer. I was recently reviewing with a menswear retailer and found that over the last 12 months, revenue was up 13% but units sold was down 1,000 units. Not surprising. When you think about it, a Zegna basic suit in 2020 was $2,500 at retail and today it is $4,500+. A Johnnie O polo in 2020 was $85-95 dollars, today it is $110-125. Zegna is up 96% and the polo is up 30%. Your clients have accepted the higher prices even though some of you may be feeling some price resistance and concerned about whether prices have reached their ceiling.
Pay Attention to Your Assortments
Selling fewer units (with potential price increases ahead) creates pressure on assortments. If you are too conservative in your open to buy, you could leave yourself understocked, meaning you inflict your own downturn.
Prioritize Depth Over Breadth
Avoid the pitfall of over-assorting your product lines. Instead, focus on buying in depth with vendors that guarantee the highest return on investment (ROI). A streamlined assortment allows you to negotiate better terms and potentially better savings with your key vendors.
Strategize Price Points
If you have 2 price points, consider adding a third. If you have 3 price points this could be the time to go up a notch or down a notch. The temptation might be to go downscale; however, I would argue going deeper into luxury is a good strategy. High end customers are recession proof and can tolerate price increases. When you have multiple price points, you can move your customers and better differentiate value.
Optimism for 2025
I am optimistic about 2025. We have a healthy economy that I believe will continue to grow in the next year. The ability of the new administration to balance deficits, tax cuts, and Tariffs will tell the tale. Not achieving that balance could be a foreboding signal for 2026. Tax cuts should motivate markets. Wealth generation, especially among millennials, those under 40 has grown, by 50% according to CNBC from a study by CAP based on Federal reserve data from 2019 through 2023. Some of this is fueled by a massive transfer of wealth from Baby Boomers to the next generation. There is also the Ozempic effect. Weight loss has caused many clients to build new wardrobes. As accessibility to the GLP-1 drug grows, there should be increased opportunity.
Focus on Selling Metrics: Increase Average Sales Per Transaction
When facing potential price hikes due to increased tariffs, one immediate strategy is to focus on raising the average sales per transaction. Encourage your staff to upsell and cross-sell to maintain higher transaction amounts per customer. For instance, increasing average sales can help absorb the repercussions of rising costs.
Invest in sales education and coaching.
The greatest ROI you have is the productivity of your staff.
Expand Your Client Base
Growing your customer base is a prudent move against impending price increases. Transitioning new holiday shoppers into loyal repeat customers presents a significant opportunity. A larger customer base reduces your dependency on individual transactions and mitigates the impact of price sensitivity.
Maintain Your Initial Markups: Guard Your Margins
Do not be tempted to lower markups in hopes of maintaining demand. Price increases will affect the entire market, and competitive pricing should not come at the expense of your margins. Assess initial markups carefully to ensure sustained profitability.
Engage With Your Vendors
Stay in close contact with your key vendors to understand their responses to tariff changes and collaborate on strategies that benefit both parties.
Discover New Suppliers
Utilize new resources to diversify and strengthen your product offerings. Invest time in the market and be willing to take some risks. You know your clients: leverage your relationships with them to build on new looks, vendors, and categories.
Additionally, evaluate and consider adding new sources of domestic labor, including independent contractors that you can hire as needed to better support the rapidly shifting demands of your business.
Embracing Change as an Opportunity
While the prospect of increased tariffs may seem daunting, it also provides an opportunity to innovate and adapt. By proactively employing these strategies, you can take control of your business’s narrative rather than letting global events dictate your outcomes. With careful planning and execution, you can navigate through this period of change successfully.
Conclusion
The shifting tariff landscape demands vigilance, strategic adjustments, and a proactive mindset. By emphasizing the controllable aspects of your business operations and remaining flexible in your approach, you can face these challenges head-on. Remember, change is not just an obstacle but an opportunity to redefine your business strategies and emerge even stronger.
Marc Weiss, co-founder, Management One, can be reached at marc@management-one.com.
Illustration, at top, by ChatGPT.