Retailers Win by Playing Hardball on Tariffs
I understand the business of retail very well. My entire career has been spent running sizable apparel chains. There’s nothing I haven’t seen or had to deal with, in order to successfully manage my businesses, even in the most difficult and complex market conditions. But here is one thing I do not understand: Why would a CEO sitting atop a powerful retail chain allow tariffs on goods from China mess with their retail pricing, profits, and margins?
The good news is that an increasing number of retailers are holding the line. They are not allowing tariffs to cause a spike in their prices.
The same tough stance can take place at chains that aren’t huge. Management must secure their profits by being aggressive with suppliers. CEOs owe it to their stakeholders to resist downward pressure from vendors who want to pass along wholesale price hikes due to tariffs on goods from China—or from anywhere.
Consider this item from industry website Supply Chain Dive…
“Target has communicated to its suppliers the retailer will not be raising prices for consumers nor accepting higher prices from suppliers as a result of existing and forthcoming tariffs on imported Chinese goods.”
That’s great news.
For me, it’s old news. The current trend of strong executives pushing back against suppliers trying to pass along their cost increases takes me back to 2011.
That’s the pivotal year I had to confront, as CEO of specialty apparel retailer rue21, a situation comparable to today’s tariff crisis: the apparel industry’s cotton crisis.
The 2011 cotton crisis wasn’t caused by tariffs, but by shortages. It was a game-changer for the entire soft goods industry. The impact proved so long-lasting it occupies its own chapter in my book Fisch Tales: The Making of a Millennial Baby Boomer, from ForbesBooks.
rue21 was nowhere near the size of a Target or Wal-Mart, but the secret to our success in conquering the cotton crisis boils down to this: I ran rue21 as if it were that big and powerful!
The shortage of cotton caused suppliers to raise their prices. Most retailers assumed (wrongly) that their only plausible reaction was to pass along the cost increases to their customers.
The difference between then and now is that in 2011 the heads of big retailers like Wal-Mart, Target, and Macy’s did not sit down themselves with manufacturers to directly negotiate favorable terms. They left that to their merchant teams to decide on their own.
In my mind, that was a major mistake. Delegating authority where appropriate is one thing, but if senior management lets teams down the line do their job for them, they’ll suffer the consequences.
We told our vendors that we could not pay a penny more than what they had been charging us.
It wasn’t an idle threat. While not a big-box store, rue21 was big enough to place million-unit orders. Our suppliers weren’t about to give up that business.
Because we dug in our heels, almost none of our vendors raised their prices to rue21 during the 2011 cotton crisis. As a result, we didn’t have to jack up our price points, which stayed stable for the duration of the shortage. We turned what was a crisis for others into an opportunity for rue21.
In fact, we were one of the only retailers in our market segment that did not raise its prices that year.
The strategy that worked so well for rue21 in 2011 also can benefit retailers having to deal with today’s tariffs.
My book is packed with what I call “School of Fisch Lessons.” This one is that the future becomes more manageable and favorable when you learn the lessons of the past.