Reimagining Retail: Tariffs Are Here: Consumer Shifts, Surprising Outcomes, and Must-Watch Metrics

Summary

Behind the Numbers: Reimagining Retail - Tariffs Are Here: Consumer Shifts, Surprising Outcomes, and Must-Watch Metrics

Released April 23, 2025 | Host: Sara Lebo | Guests: Rachel Wolf & Zach Stambor

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Introduction

In the April 23rd episode of EMARKETER’s "Behind the Numbers," host Sara Lebo delves into the complex and evolving impact of newly imposed tariffs on the retail landscape. Joined by EMARKETER analysts Rachel Wolf and Zach Stambor, the discussion offers a comprehensive analysis of how these tariffs are reshaping consumer behavior, affecting various retail categories, and causing ripple effects across the advertising sector.

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1. Overview of the Recent Tariff Changes

Sara Lebo begins by outlining the tumultuous timeline of tariff implementations in April:

• April 2: A universal 10% tariff was introduced on all goods imported into the U.S., unless a specific tariff had already been announced for that product.

• April 4: China retaliated by imposing a 34% tariff on U.S. imports.

• April 9: The situation escalated dramatically. Initial confusion led to the imposition of additional tariffs, including a staggering 104% on certain Chinese goods. Subsequently, President Trump reduced reciprocal tariffs back to 10%, only to later announce increases to 125%, and eventually clarifying them to 145%, with some Chinese products facing tariffs as high as 245%.

Sara Lebo [01:00]: "That's a lot of me talking, Zach. Rachel, how are tariffs impacting consumer behavior?"

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2. Shifts in Consumer Behavior

Rachel Wolf highlights the bifurcation in consumer responses to the tariff-induced uncertainty:

• Proactive Shoppers: Eager to mitigate future costs by purchasing high-ticket items like cars and consumer electronics before prices rise.

• Cautious Consumers: Choosing to delay non-essential purchases, adopting a wait-and-see approach amid economic uncertainty.

Rachel Wolf [02:11]: "There's two camps of consumers. One is like, I need to get ahead of the tariffs... The other is saying, I'll hold off and wait to see how bad things get."

Zach Stambor adds that this heightened scrutiny extends to everyday purchases, compelling consumers to evaluate each spending decision more meticulously than ever before.

Zach Stambor [02:47]: "People are weighing every single purchase decision that they make in a way that they probably weren't just a few months ago."

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3. Impact on Specific Retail Categories

The discussion moves to the uneven effects of tariffs across different retail sectors:

• Automotive and Electronics: Significant behavioral changes observed, with consumers accelerating purchases of cars and gadgets.

• Furniture and Apparel: Despite being non-essential, these categories saw unexpected sales increases in March, possibly due to consumers taking advantage of pre-tariff pricing.

• Beverages: Particularly hard-hit is the beer category. Constellation Brands, which imports Mexican beers like Modelo, Corona, and Pacifico, faces increased costs due to tariffs on both imports and packaging materials.

Zach Stambor [05:07]: "Constellation Brands was growing really well, and they just slashed their outlook because of the tariffs."

Rachel points out that even seemingly "American" brands like Pepsi are affected, with key ingredients sourced internationally.

Rachel Wolf [05:47]: "Even the price of soda is going up purely as a result of these new tariffs."

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4. Ripple Effects on Advertising and Digital Spending

Sara Lebo connects the tariff implications to the broader advertising ecosystem, particularly digital and social media marketing:

• Reduced Ad Spend Growth: Heavy tariffs could constrain social media ad spend growth, potentially limiting it by up to $10 billion.

• Shift to Performance-Based Advertising: Companies may pivot from brand-building initiatives to more measurable, performance-oriented advertising strategies to protect margins.

Sara Lebo [06:55]: "If you look at our forecast, that is what is currently there. If you want to see the current environment, we modeled what we are calling a moderate tariff environment."

Zach Stambor [08:20]: "In the current environment, we think It'll be about 8%. But if we shift to the heavy environment, it'll grow just 4.5%."

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5. Unexpected Outcomes and Global Brand Challenges

Rachel Wolf discusses the unforeseen challenges for global brands amidst rising anti-U.S. sentiment:

• Brand Performance Abroad: Companies like Nike, with significant operations in China, may struggle as Chinese consumers reduce their patronage of U.S. products.

• Complex Supply Chains: The interconnectedness of global supply chains means that disruptions can have widespread and unpredictable effects.

Rachel Wolf [10:08]: "If you're a global brand like Nike and you have a huge presence in China... what does that mean for your ability as a company?"

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6. Retailer Response Strategies

The panel offers strategic advice for retailers navigating the tariff landscape:

• Adjusting Ad Budgets: Prioritize performance-based advertising over traditional brand-building to maximize ROI under tightened budgets.

• Transparent Pricing Communication: Clearly inform consumers about price increases due to tariffs to maintain trust and mitigate backlash.

Rachel Wolf [19:30]: "Be as transparent as possible and not just say, oh, we're raising prices because everybody's raising prices."

• Supply Chain Transparency: Ensure a detailed understanding of the supply chain to identify vulnerabilities and alternative sourcing options.

Sara Lebo [20:44]: "Make sure I have a clear and contemporary understanding of where each part of my supply chain is."

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7. Key Metrics to Monitor

To effectively respond to the evolving situation, the panel identifies critical metrics for retailers:

• Grocery Inflation: Immediate impact on consumer spending patterns.

• Job Market Indicators: Unemployment rates and job openings provide insight into consumer confidence and purchasing power.

Rachel Wolf [16:39]: "The jobs report numbers are also going to be really instructive about how people are feeling."

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8. Conclusion and Final Advice

As tariffs continue to create an unpredictable retail environment, Sara Lebo emphasizes the importance of adaptability and strategic planning. Retailers are encouraged to develop contingency plans based on varying tariff scenarios (low, moderate, heavy) and to remain agile in their marketing and operational strategies.

Zach Stambor [19:13]: "I would take a sharp look at my ad budget. I would cut out brand building initiatives, focus on performance-based ad spending like search."

Sara Lebo [20:37]: "If you're a retailer right now, what is one thing you would do tomorrow to prep for tariffs?"

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Closing Remarks

The episode concludes with a reminder of the pervasive impact tariffs have beyond immediate pricing, influencing consumer behavior, brand strategies, and the very fabric of global supply chains. Sara Lebo thanks her guests, Rachel Wolf and Zach Stambor, for their insightful analysis and encourages listeners to stay informed through EMARKETER’s ongoing coverage.

Sara Lebo [21:28]: "Well, that is all we have time for today. So until next time we talk about tariffs."

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This episode of "Reimagining Retail" provides an in-depth examination of the multifaceted effects of tariffs on the retail sector, offering valuable insights for marketers, retailers, and advertisers striving to navigate these challenging economic conditions.

Transcript

[Sara Lebo]

Connective Media by United Airlines is redefining traveler media with a world first omnichannel network. From in flight to online and in app experience, Best in class tech helping brands engage travelers where it matters most. Ready to make an impact? Discover [e-mail] hello listeners. Today is Wednesday, April 23rd. Welcome to behind the Reimagining Retail, an emarketer podcast made possible by Connective Media by United Airlines. This is the show where we talk about how retail collides with every part of our lives. I'm your host Sara Lebo. Today's episode topic is once again, tariffs. One way that retail is colliding with most of our lives. Before we jump into that, let's meet today's guests. Joining me for this episode, we have two members of our briefings desk. First up is Rachel Wolf. Hey Rachel.

[Rachel Wolf]

Hey, thanks for having me.

[Sara Lebo]

Thanks for being here. Also with us is Zach Stambor. Hey Zach.

[Zach Stambor]

Hey Sarah. Hey Rachel.

[Sara Lebo]

Hello. Okay, let's recap real quick what happened with tariffs in April. This is a super high level overview. On April 2, a 10% tariff was applied to all nations importing goods to the US Unless a tariff has already been announced on that product. On April 4, China announced a 34% tariff on imports from the US then April 9, this was the day that the markets got all confused. At first, a bunch of extra tariffs took effect, including a 104% tariff on China. But then Trump backed down on some reciprocal tariffs, bringing them back to 10%. Then Trump announced the tariffs on China were actually 125%. And the next day it was clarified that they were 145%. But not all Chinese goods are being taxed evenly. On some goods, tariffs are as high as 245%. So you can see how this topic is confusing. And along the way, consumers are confused too. With consumer sentiment falling once again in April. That's a lot of me talking, Zach. Rachel, how are tariffs impacting consumer behavior?

[Rachel Wolf]

I think pretty much everybody is worried about tariffs at this point, right? And worried about prices going up, worried about how they're going to affect their jobs and the economy and potentially cause a recession. So I would say, you know, there's basically two camps of consumers. One camp is like, I need to get ahead of the tariffs, need to buy my car now before it becomes exponentially more expensive in the coming months. But then you have the other camp that's saying, well, I'm not so sure about that. You know, I'm going to hold my cards close to the chest for the moment and sort of hunker down and wait to see how bad things get.

[Zach Stambor]

And I think those consumers, they might be the same consumer in one bucket. You know, you need a new car, and so you've got to get it now because you know that the price will go up in a few months. On the other hand, you might not need a new pair of shoes. You would like to have them, but you don't need them. And so you just decide, I'll hold off. So I think, you know, people are weighing every single purchase decision that they make in a way that they probably weren't just a few months ago.

[Sara Lebo]

Yeah. And that especially makes sense for cars and consumer electronics. I feel like that's where we're seeing the most behavior changes right now. Other categories aren't necessarily being touched as much yet. I think that will change in the coming months. But right now, just looking at sales data, we're not seeing huge changes in every category, are we?

[Zach Stambor]

It kind of depends. You know, there are the categories where people are very clear that there will be an effect from tariffs. So in March, we saw retail sales in the furniture category shoot up. We sales in apparel shoot up. And then Otto drove, pun intended, right up into the right. But, yeah, in other categories, it's a bit less pronounced, but there's a lot of categories where a whole lot of the goods that we buy are imported and will surely be affected by these tariffs.

[Sara Lebo]

Yeah. Something we were talking about is categories that you might not be thinking of as immediately as something that tariffs are impacting. What are some categories that stand out to you guys there?

[Zach Stambor]

Well, it's just like there are so many tariffs, just as you. As you mapped out at the top of the show, there's just so many going on that it's hard to keep track of everything. And so a category like beer is seeing a huge effect. Constellation Brands, the parent company of Modelo, Corona and Pacifico, their whole portfolio of beer are Mexican brands. So they're imported beers. And so they're going to be hit or are being hit with the tariffs on imported canned beer.

[Sara Lebo]

And the cans themselves are also imported, right?

[Zach Stambor]

Yes, the cans are being tariffed. You have the steel that is used to produce the kegs being tariffed, and so expenses are just shooting right up. And it's hitting this company really hard. I mean, Constellation Brands was. Was growing really well, and they just slashed their outlook because of the tariffs. And then some other things going on as well, because, like I said, their entire beer portfolio are these Mexican brands and they're seeing some weakness among Hispanic consumers as well for a range of. Of reasons. Yeah.

[Rachel Wolf]

I mean, what the other thing that I think is interesting is that a lot of brands that we associate as being American are manufactured abroad. Like I was looking at reading about Pepsi today, and most of their concentrate is made in Ireland. So that would make, you know. Yeah, me neither until this morning. So, yeah, like even the price of soda is going up purely as a result of, you know, these new tariffs. So I think basically there is no sector that is left untouched.

[Zach Stambor]

Yeah, I mean, the point is we have a global supply chain that has very deep roots and so to uproot it all at once is jarring. It will have a ripple effect across a whole range of sectors. And so while it's easy to see the impact on furniture, you know, if you buy stuff from Ikea, you know that it is not produced here, but when you buy a 2 liter bottle of Pepsi, you don't really think about where that concentrate is coming from.

[Sara Lebo]

Yeah. And that ripple effect extends beyond just retail. As someone who writes about marketing as well, we're gonna see ripple effects obviously or not obviously in advertising. So social media in particular, TEMU and Shein have been huge bolsters for Meta. Now they're cutting way back. And as a result, we've updated our forecast that depending on how heavy tariffs are, social media's ad spend growth could really be limited. And that weight could be as much as 10% or $10 billion in the impact, depending on how heavy tariffs are. Obviously, if social media gets impacted, then the entire ad sector could be impacted as well. So, yeah, tariffs are clearly extending beyond retail for sure.

[Zach Stambor]

And to take a step back, I think it's worth noting as we modeled out the impact of these tariffs, we had to do it in a few different ways because things are very dynamic. And so we both took the baseline pre tariff environment. We have that in place now. That is, if you go to our website and you look at our forecast, that is what is currently there. If you want to see the current environment, we modeled what we are calling a moderate tariff environment. Moderate being a.

[Sara Lebo]

In terms of what's proposed.

[Zach Stambor]

Yes, as opposed to the very heavy Liberation Day tariff environment which we also have modeled out. And so the moderate environment still has a pretty sizable effect on ad spending because as these companies see their margins being squeezed, they've got to protect their bottom line. And so they're going to shift their advertising spending to where they can see the clear effect of that spending. So they're going to shift to performance based advertising rather than just, you know, the type of brand building that they otherwise would be spending up.

[Sara Lebo]

Yeah. Perhaps a more clear way of putting this is that we currently forecast or ahead of tariffs. We forecasted social media ad spend would grow in the US by about 13%. With these heavy Liberation Day tariffs year over year, growth would slow to about 1.5%. And if you want to look into that more, Zach helped put together a fantastic report on the impact of tariffs on US Businesses. That's on our subscription website.

[Zach Stambor]

Yeah, I mean, I think a really good way of looking at this is not only looking at social, but just looking more broadly at digital advertising, at digital ad spending as a whole. You know, we had expected spending to grow about 12% this year. In the current environment that we're in, we think It'll be about 8%. But if we shift to the heavy environment, it'll grow just 4.5%.

[Sara Lebo]

Are there any unexpected outcomes coming from tariffs or is this all sort of how you guys predicted a year ago when we talked about potential tariffs?

[Rachel Wolf]

I don't know if this is unexpected, but certainly one thing that I'm looking at is how anti US sentiment is affecting brands. I mean, we talk a lot about their performance in the US but if you're a global brand like Nike and you have a huge presence in China and China is a very, in a very important market for you, and all of a sudden Chinese are just not interested in buying US Products, you know, what does that mean for your ability as a company, especially for Nike, to come back from what's been a pretty terrible year. And you know, this is not only the case for Nike, but you know, for companies like Walmart also that have operations in all these different countries having to navigate that, I think that's going to be pretty tricky in the year ahead.

[Sara Lebo]

Yeah. Something that surprised me is seeing how many companies are using tariffs or tariffs potential as a buy now sort of advertisement. Obviously we've seen this within auto, you know, buy your car now before its price goes up by 100%. We've also seen people more demand for iPhones and smartphones in general. But I've just seen in like regular CPG ads every so often, you know, like buy before the tariff comes. This is an ad strategy now.

[Zach Stambor]

I think that's right and I think it's working. I mean I got a promotion this week weekend to trade in my phone and I am not somebody who trades in my phone often. I let my phone just like age and age. And age. But I was thinking about it and being like, well, maybe I should just take advantage of this now because it's going to be more expensive.

[Sara Lebo]

I've been really on the fence about trading in my phone as well. I have an old phone, I have the Mini, which they don't make anymore. And so I've also been seeing this as a consumer. Something concerning about it is it's a very right now way of thinking for brands. I don't want to call it shortsighted. Obviously brands are preparing for tariffs, but if you are encouraging a whole bunch of buying behavior right now, then it's naturally going to slow down. And yeah, but I think it makes sense.

[Rachel Wolf]

Right. Because if you're expecting sales to slow regardless, you want to take advantage of, you know, the sort of panic buying behaviors that people are exhibiting right now.

[Zach Stambor]

Also, things have moved so rapidly. It is very hard for any company to make any sort of long range plans. So you have to live in the moment and as it might as well goose the numbers as much as you can at the moment because who knows what's ahead around the corner.

[Sara Lebo]

Yeah, I think a good way of thinking about this for retailers would be thinking about that low, moderate, heavy way that you modeled in that report. Zach, if I were a brand right now or a retailer, I would be coming up with contingency plans for each of those potential outcomes.

[Rachel Wolf]

Yes, but it's also difficult to figure out what the contingency plan is because unless you're moving production to the US you're going to be subject to tariffs in some way, shape or form.

[Zach Stambor]

Yes, I was going to make the same exact point. And moving production is incredibly hard and something that takes many years. And even if you are moving production and building a factory, many of the component pieces that you use to build the factory are subject to tariffs. And so even within that, it is difficult to make long term plans because each of those elements are subject to change.

[Sara Lebo]

Yeah. If you're a Buy American sort of local retailer that really does want to reshore, your machinery is likely going to be made at least in part overseas. Never mind the fact that it will also be difficult to find labor for those factories. There's a lot of aspects at play that make it either impossible or very difficult for retailers that do want to reshore to the US to do so.

[Zach Stambor]

Yes.

[Sara Lebo]

Other than that, is anything else unexpected? I feel like we had a November episode where we talked about potential tariffs, the three of us, and honestly it was a lot of the same conversation. We're having right now.

[Zach Stambor]

Yeah. One of the things that we didn't talk about was how retail sales did jump a lot in March and they were fairly. They were weaker than expected in February. And so I think that is indicative of this weird environment that we're in in which consumers are just, I don't want to say panic buying because that's not the right term, but. But splurging strategically splurging on key items that they are, that they are in need of and figure I might as well buy now.

[Sara Lebo]

So sales numbers were fairly healthy in March. If I'm a retailer. That makes it once again really difficult to plan what numbers should retailers be watching?

[Zach Stambor]

I think we're going to see this funky retail environment for several months because retailers have inventory on hand that was not subject to. To tariffs. They will sell and they're bringing in.

[Sara Lebo]

A lot of them are bringing in more inventory or brought in more inventory ahead of tariffs as well.

[Rachel Wolf]

Yeah.

[Sara Lebo]

Does Apple do this with iPhones?

[Rachel Wolf]

Right. But the one exception to that is grocery. So I think that is one of the key numbers to watch, which is grocery inflation because that's going to have an immediate impact on people's purchasing behavior.

[Sara Lebo]

And yeah, I'm eating myself avocados off of avocados to prepare.

[Zach Stambor]

I know, avocados and bananas and coffee. Oh, like what will my breakfast be? I. I do not know. But yeah, I think we will very quickly, to Rachel's point, see the impact at the grocery store. How that, how those higher grocery bills then impact consumer behavior will be really interesting because we've already seen consumer sentiment fall to near historic lows and we.

[Sara Lebo]

Already know that people are strained at the grocery store in particular as it stands with the price of eggs and.

[Zach Stambor]

Other goods for sure. And that's only going to intensify.

[Rachel Wolf]

The other thing I would add is the jobs report numbers, I think are also going to be really instructive again about how people are feeling if they're confident or less confident about their job prospects. That's also going to be important for retailers to keep an eye on.

[Zach Stambor]

Are you talking about unemployment or are you talking about the jolts numbers, job openings?

[Rachel Wolf]

Well, I think it's both. Right. One is, you know, if you're worried about the overall health of the jobs market, then you care both about layoffs, but also are there opportunities out there?

[Zach Stambor]

Yeah, I think the job openings number is going to be fascinating to see how businesses are responding. Are they just, you know, bunkering down and saying we're going to make do with what we've got, or are they going to say, well, we need people to do stuff and so we're going to keep on hiring? I think it's the former, but we'll see.

[Sara Lebo]

Yeah, I mean, we talked about this as a key difference between the last time that Trump was in office and tariffs set in. There were decent job numbers then, right? Or decent employment numbers.

[Zach Stambor]

Yes. So few differences though. One is that those tariffs were really finely targeted. They were something, you know, you might have a tariff on washing machines, but you didn't have a 10% universal tariff on everything else. So, yeah, the price of a washing machine went up, but, you know, the price of a refrigerator did not. And so the other thing about it was the labor market was really strong. And while if you look just at the surface line numbers, the unemployment rate, the labor market looks pretty decent, but we have seen it loosen quite a bit over the past year. We had that incredibly strong labor market during the past inflationary period during the Biden administration and people just kept spending because they felt okay about their job prospects. Now, I don't think that's going to be the case. And so that's a major difference in terms of the potential response to an inflationary environment this time around.

[Sara Lebo]

Yeah. I also think people are just more confused in general this time around. They have less of a clear vision of the future. On that note, if you're a retailer right now, what is one thing you would do tomorrow to prep for tariffs?

[Zach Stambor]

I would take a sharp, sharp look at my ad budget. I would X out brand building initiatives, focus on performance based ad spending like search. Lean into search. You know, you're going to get the bang for the buck.

[Rachel Wolf]

What I would say is that, you know, with price increases likely to come, you know, now is the time for brands to start the messaging around that. Be as transparent as possible and not just say, oh, we're raising prices because everybody's raising prices. You know, be surgical about it, say, tell shoppers we're raising prices because our products come from X, Y and Z. And now we're being charged X percent more. All of that. You know. Yeah, just be transparent.

[Zach Stambor]

And some brands are doing interesting things with that. Like sexual wellness brand. Dame has a line item when you check out, oh yeah, I saw this tariff fee and I think it's like five bucks or something. They're absorbing some of the cost, but they're passing along some of the cost to the consumer but saying, hey, this isn't us. This is just the overarching conditions that we're having to deal with.

[Sara Lebo]

That depends what kind of company you are. I saw some data a while back that a lot of consumers don't really like, want to see you blaming Trump or the economy. But a sexual wellness brand, their consumers might be more comfortable with that sort of messaging. So that really depends on who your consumer is.

[Rachel Wolf]

But I think you could even just call it a tariff search charge. Right. And just say, like, you know, this is the cost of the tariff that I now have to pass on to the consumer.

[Sara Lebo]

Yeah. What I would be doing if I were especially leadership at, like, a large retail company is making sure that I have a clear and contemporary understanding of where each part of my supply chain is, which sounds really simple, but I feel like that messaging gets lost a lot of the time, especially at the leadership level. I would make sure I know where everything is being made, like how much of my production is coming from each country and where the other potential options for that production could be. If there are other options. Yeah. Just making sure that I'm communicating within my company as well. Okay. Well, that is all we have time for today. So until next time we talk about tariffs. Thank you, Rachel.

[Rachel Wolf]

Thanks, Sarah.

[Sara Lebo]

Thank you, Zach.

[Zach Stambor]

Yeah, thanks for having me.

[Sara Lebo]

Thank you to our listeners and to our team that edits the podcast. Last tariff episode, I called them. Terrific. So we'll call on that again. We'll be back next Wednesday with another episode of Reimagining Retail, an emarketer podcast made possible by Connective Media by United Airlines. And on Friday, join Marcus for another episode of the behind the Numbers Show.