Monday, June 3, 2019

Reuters Article: The Impact of China Tariffs on Consumer Spending

We were recently contacted by a reporter from Reuters to comment on the potential impact on consumer spending from the 25% tariff on furniture sourced from China. After some qualifying discussion we made the case that the impact could be significant. Here's the example we proposed to illustrate the point:

Imagine a piece of furniture that had cost a retailer $400 prior to the tariff. That item would likely have been priced at about $799. This is a 50% gross margin that's fairly is typical among furniture retailers but with wide variations from one store to another, depending on competition, market position, local rent, wages, warehousing, taxes, cost of capital, et al.

Adding a 25% tariff tacks another $100 on the cost of the item, bringing it to $500. For the retailer to maintain their GMROI (Gross Margin Return On Investment) ratio, they now need to price the item at $999; that $200 price increase is not insignificant to many people.

Given that a furniture purchase is generally "postponable" and based on my experience in the home furnishings industry, I expect the impact of this tariff to be meaningful once the higher costs work their way through the supply chain. 

Here's a link where you can read the story in its entirety : Reuters Article on Furniture Tariffs

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