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"As tariffs threaten to raise prices, a potentially existential question is facing retailers: How much inventory is too much or too little in such an uncertain environment—and is it worth squirreling away a little extra if higher costs are on the horizon?" *
That’s the question posed by Alex Vuocolo in the May 21, 2025 Retail Brew.
That vexing issue of “how much inventory is too much?” is not new to retailers, of course. But the volatility of the tariffs being imposed by the current administration are a significant complication.
Walmart's announcement that its prices are increasing due to the tariffs is welcomed by some retailers as an "everybody is doing it" cover story for raising their own prices. They can recommend that their staff just dismissively say, "Oh, it's because of the tariffs, you know," whenever customers challenge them about the price of an item.
That approach, commiserating with the customer, is likely to become widespread. After all, we all are feeling the impacts of higher prices, from the gas station to the grocery store.
But here's another idea for you to consider, an alternative to the victim mentality of the-tariffs-made-us-do-it. It all comes back to controlling the controllables in your business.
On April 5, the National Retail Federation, “the world’s largest retail trade association,” felt compelled to explain “Five Things To Know About Tariffs.”
Among the first things they explain is who actually pays the tariff.
“Tariffs are a tax on goods imported into the United States and are paid for by the U.S. importer.”
“When tariffs are enacted, retailers are forced to choose between raising their prices or relying on already slim profit margins to absorb the increased cost of inventory.”
“Many small retailers are indirect importers and rely on other companies to import the products that they sell. These indirect importers [that is, small retailers] have even less ability to shift their supply chains to mitigate tariff costs.”
This sums up pretty well the challenges retailers are living with. But...
Honestly, we don't want to sound like alarmists. However…we are sounding an alarm!
As we all know, prices are rising, consumer confidence is falling, layoffs are rampant, and inflation, particularly with the impending tariffs, is likely to persist. All of which could combine to drive the economy into a recession. Grim.
Savvy retail owners are starting now to draft new "game plans" for this new economic environment. We want you to be one of the savvy ones.
For one example of how that can be done, consider the “torrent of adjustments” made by Starbucks' most recent new CEO Brian Niccol. (The company has had four CEO changes in the past five years.)
Essentially, he has enacted the moves of a classic turnaround plan, one that matches cost-cutting tactics with strategic goals, both quantitative and qualitative. (All without a chainsaw.)
Running a retail operation, as you know, is a tough job to do successfully. (The failure rate keeps reminding all of us of that fact.) And now, that job is even harder.
Maybe we're being overly dramatic, but it seems to us that there are two very dark clouds simultaneously coming our way. Consumer confidence is falling while announced tariffs will be raising costs.
We all have to wonder whether consumers are going to hold back discretionary spending even more;
And, at the same time, we must start guessing what impact tariffs might have on our merchandise.
We've not heard of any available consultants, pundits, or fortune tellers that have magic solutions. Alas.
What is called for? Your best judgment, as the owner. Never before has it been needed more immediately.
Periodically it’s more essential than normal for business owners to interrupt their routine and get a good look at their upcoming financial choices.
And this is one of those times!
Many very savvy people are quite concerned about the economy and consumer behavior right now.
High debt maturing in both the real estate and the public sectors.
The multiple international upheavals that continue to grow.
And, certainly, the impending changes at the Presidential and Congressional level in the U.S
These issues are joined by others to make NOW a very important time for business owners to look ahead financially…maybe weekly for a while.
Perhaps you saw that recent article* in The Wall Street Journal. As Ruth Simon reported, "The cost pressures squeezing small businesses – and their need to pass along those higher charges – help explain why inflation has been so stubborn."
Maybe you noticed this (see "Retailers Lay Out a Downbeat Outlook"*) but the big national retail chains, despite better-than-expected quarterly earnings this week, still are looking at a year of low to no growth, citing reduced spending by lower income groups, the loss of covid relief money, the effects of inflation, etcetera.
But, here is the key observation, and an important reminder:
How to reconcile this doom-and-gloom from the big national retailers with our still-strong economy, which is 70% driven by consumer spending?
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