‍Tariffs will remain a headwind for most ecommerce companies this year. Given the U.S. Administration’s recent announcement of its 90-day pause on tariff actions (excluding China), merchants have a window for planning for this new macroeconomic environment. Before doing so, ecommerce brands should answer the fundamental question of whether or not tariffs apply to them. For now, with the 90-day pause in place, the consensus is to stockpile goods prior to any potential increase in tariffs.

Managing Tariffs for Ecommerce Brands: Strategic Pricing and Communication

While the transfer of tariff costs to consumers may be unavoidable,strategic communication is paramount. The communication strategy for your website storefront will be different from Amazon, Walmart or any other marketplace. An abrupt price adjustment, devoid of context, can negatively impact customer relationships. Conversely, a well-articulated communication strategy can serve as a brand-enhancing opportunity. For example, for your website storefront, consider the following sample communication:

Hi {{Name}}, we are grateful you’ve joined the Clearco family as a customer. Due to recent U.S. trade policy actions, our costs have increased. We are firm believers in delivering the best product possible at an appropriate price. We are actively exploring alternative supply chains and working with our suppliers to keep prices as low as possible.

A proactive and transparent communication approach should be favorably received by consumer communities.

Now regarding strategic pricing. The consensus among consumers is that the increase in tariffs will be directly passed onto customers. For example, a product that costs $5 which has a tariff increase of $5, suggests that a product priced at $30 would now be priced at $35. The gross profit margin of 83% ($25/$30) now declines to 71% ($25/$35). 

While the absolute dollar amount earned per unit is the same, it does not factor in a critical variable, return rates. Therefore, rather than passing on direct costs of tariffs to consumers, it is suggested to maintain gross margins in order to remain profitable.

‍

‍

Managing Tariffs for Ecommerce Brands: Negotiating with Suppliers

Ecommerce companies often fail to appreciate that their suppliers want to be supportive of their customers and don’t want to see their overseas partners out of business. If importers go bankrupt, suppliers will suffer. This mutual dependency forms the basis for strategic negotiation, which allows DTC ecomms to negotiate from a position of strength.

There are additional variables that you can consider with supplier negotiations:

1. Currency Fluctuation Leverage: Given the reported controlled devaluation of the Renminbi (RMB) in response to tariffs, importers paying in USD can capitalize on currency fluctuations. This devaluation strategy is a deliberate countermeasure against export declines.
2. Market Share Opportunity: Exploit opportunities to capture market share during this downtime. If you have a longstanding history with your supplier and can weather tariffs, you can emerge as a top seller within your niche. Factories look to work with brands that can purchase as much volume as possible.
3. Cash Flow Optimization: In lieu of price reductions, explore alternative cash flow management solutions, such as extended payment terms (e.g., 30, 60, 90 days), with corresponding payment weight adjustments.

Managing Tariffs for Ecommerce Brands: Supply Chain Diversification

For ecommerce brands facing tariff burdens on goods sourced from a singular region, a robust diversification strategy is not just advisable, it’s essential.

• Jurisdictional Optimization: Targeting Low-Tariff Regions: 
  
  • Actively identify and evaluate potential manufacturing hubs within low-tariff jurisdictions. This approach minimizes direct tariff impact and enhances cost competitiveness.
• Supplier Redundancy: Mitigating Single-Point Failure: 
  
  • Establish relationships with multiple suppliers to prevent operational disruption in the event of a single supplier failure.
  • Implement a supplier vetting process that includes capacity assessments and contingency planning reviews.
• Logistics Reliability and Time Sensitivity: 
  
  • Beyond cost and product quality, prioritize shipping times and reliability. Assess the logistical infrastructure of potential jurisdictions.
  • Evaluate the potential for shipping delays due to geopolitical factors, natural disasters, or infrastructure limitations.
• Technology Integration for Supply Chain Visibility: 
  
  • Implement supply chain management (SCM) software to enhance visibility and control over inventory and logistics.

Strategic Recommendations Summary:

• Take Advantage of 90-Day Pause: If your supply chain is in a jurisdiction future expected tariff increases, consider stockpiling goods.
• Prioritize Transparent Communication: Engage customers with clear, proactive communication regarding price adjustments and supply chain challenges.
• Leverage Supplier Partnerships: Negotiate strategically with suppliers, capitalizing on currency fluctuations and emphasizing mutual benefit.
• Diversify Supply Chains: Explore low-tariff jurisdictions, establish supplier redundancy, and optimize logistics for resilience.

The current tariff landscape and macroeconomic backdrop is constantly shifting; Clearco understands how challenging this can be for our customers, and is committed to providing merchants support. If you need funding to explore or pursue the strategies above, or if you want to simply discuss how tariffs impact your business, please don’t hesitate to contact the Clearco team.