Tariffs Could Upend Retailers' Holiday Inventories

Summary

WSJ Your Money Briefing: "Tariffs Could Upend Retailers' Holiday Inventories"

Date: July 20, 2018
Host: J.R. Whalen
Guest: Elizabeth Winkler (Heard on the Street columnist)

---

Overview

This episode examines the looming threat of U.S. tariffs on $200 billion of Chinese imports and their potential to disrupt American retailers' preparations for the holiday shopping season. Host J.R. Whalen and Wall Street Journal columnist Elizabeth Winkler discuss how the timing and breadth of possible tariffs on goods like clothing, furniture, and sporting goods could force retailers into tough decisions—potentially leading to inventory missteps and reduced profits. The conversation spotlights the complexity of global supply chains and the ripple effects policy changes can have on both businesses and consumers.

---

Key Discussion Points & Insights

1. Scope and Timing of Tariffs

• New tariffs could affect $200 billion worth of Chinese imports, including "luggage, handbags, baseball gloves, furniture, apparel, mattresses, electric lamps, components in phones and TVs." (Elizabeth Winkler, 02:26)
• The tariffs are expected to take effect right as retailers stock up for the holidays, forcing them to act quickly—either buying inventory earlier or risking higher costs. (B, 02:51)

2. Retailers' Dilemma

• Retailers must choose between pre-ordering goods to beat tariffs (which could lead to excess inventory) or waiting and risking paying more if tariffs hit. (C, 02:51)
• Many have already begun reducing their exposure to Chinese manufacturing due to rising costs, but full disentanglement isn't feasible short-term due to the "extremely complicated supply chains." (C, 03:24)

3. Exposure of Key Product Categories

• For some holiday-favorite goods, U.S. retailers remain heavily dependent on Chinese imports:
  • Toys and clothing imports from China still exceed 60% of U.S. supply in these categories. (B, 03:47)
  • Toys are not specifically on the current tariff list, but sporting goods, clothing, and furniture are significantly affected. (C, 04:00)

4. Lessons from Past Inventory Gluts

• Past episodes of preemptive over-ordering, notably in 2015 and 2016, left retailers with surplus inventory and forced "steep discounts" that hurt profits. Only by December 2017 had most regained control of inventories. (C, 04:28)
• The risk: "If they order too much, they wind up with too much on the shelves and they have a bad season like they did in previous years." (C, 04:28)

5. The Challenge of Moving Supply Chains

• Moving production out of China is "not something you can do really fast. That's like turning around a cruise ship." (B, 04:49)
• Relocating is costly, complex, and time-consuming, given the deep integration of global supply chains. (C, 04:57)
  • "To relocate is an expensive undertaking. It's a difficult one. And it's not one that is done quickly." (C, 04:57)

---

Notable Quotes & Memorable Moments

• On the breadth of tariff impact:
  “About $200 billion worth of Chinese imports, everything from luggage, handbags, baseball gloves, furniture, apparel, mattresses, electric lamps, components in phones and TVs. So that's a lot for retailers to worry about.”
  — Elizabeth Winkler (02:26)

• On retailer predicament:
  “Their decision is basically they can order now, pre order and try to beat the tariffs, or they can wait and risk having to pay higher prices.”
  — Elizabeth Winkler (02:51)

• On the scale of U.S. dependence:
  “Products coming out of China, the share of goods like toys and clothing imported by the US... runs in excess of 60%.”
  — J.R. Whalen (03:47)

• On past mistakes:
  “They had too much on the shelves and they had to discount a lot, steep discounts. And that, you know, that hurt profits.”
  — Elizabeth Winkler (04:28)

• On the reality of relocating manufacturing:
  “Relocate is an expensive undertaking. It's a difficult one. And it's not one that is done quickly.”
  — Elizabeth Winkler (04:57)

---

Timestamps for Important Segments

• [02:26] Breadth and types of goods affected by tariffs
• [02:51] Retailers’ strategic dilemma: order now or risk higher prices
• [03:24] Ongoing efforts to reduce dependence on China—and the challenge
• [03:47] Scale of U.S. imports from China for key holiday products
• [04:28] Risks and outcomes of early buying, historical context
• [04:49] Difficulty and expense of shifting supply chains

---

Tone and Takeaways

The discussion is urgent yet measured, underscoring the high stakes for retailers and the real possibility of consumer impact. Elizabeth Winkler’s insights are practical, laying out the nuanced challenges of the global retail sector in the face of sudden policy changes.

For listeners, the episode highlights the domino effect tariffs can have—affecting everything from inventory planning and product availability to the prices consumers may pay during the holidays.

---

Contributors:

• Host: J.R. Whalen
• Guest: Elizabeth Winkler (Heard on the Street columnist, WSJ)

Episode Focus:
How the threat of new U.S. tariffs on Chinese imports could disrupt holiday inventory strategies for American retailers, with significant implications for both businesses and consumers.

Transcript

[A]

Still running global payroll like a relay race. Deal replaces fragmented payroll vendors with one global system. No third parties hire, manage and pay teams in 150 plus countries with in house local experts and white glove delivery and deal plugs into what you already use. Workday SAP, Netsuite operate like a local everywhere. Visit d e l.com WSJ that's d e e l.com WSJ your money briefing

[B]

Money and market stories from the Wall street journal. I'm J.R. whalen in New York. Retailers are considering moving up their holiday season buying activities, and that's not necessarily a good thing. We'll explain in a moment. First, these money headlines. In an effort to help current and future American workers secure jobs domestically, President Trump is signing an executive order to spur new investments in job training. More than 15 companies and associations will sign a pledge to educate and train American students and workers, including IBM, FedEx, General Motors and Microsoft. As part of their commitment, those companies will commit to expanding apprenticeships, also increasing on the job training and providing Americans with opportunities to develop new skills and secure stable jobs. The White House says it expects the program to lead to more than 500,000 new career opportunities for students and workers. Meanwhile, Fitch Ratings says in a report that the current tariff battles between the US along with China and the European Union are likely to dampen capital spending by U.S. companies in 2018 and lead to a decline in spending in 2019 that could mark a turning point in the late stage business cycle. Fitch is expecting about 3% growth in aggregate capital spending in 2018. That's half the 6% growth recorded last year. And the rating agency expects that rate to swing to a minus 0.8% in 2019amid warnings of changing business strategies and delays in capital projects. This is your Money Briefing from the Wall Street Journal. Welcome back, everybody. It's Christmas in July. That is, if you're a retailer grappling with potential tariffs on Chinese goods heard on the street, columnist Elizabeth Winkler is here to explain how they could impact consumers. So, Elizabeth, the new round of tariffs, if they go through, would impact a pretty broad range of products.

[C]

That's right. Yeah. About $200 billion worth of Chinese imports, everything from luggage, handbags, baseball gloves, furniture, apparel, mattresses, electric lamps, components in phones and TVs. So that's a lot for retailers to worry about.

[B]

And you know, this new round of tariffs, if they go through, would put retailers in a bind because they have to take action now to protect their inventories, especially in preparation for the holiday season.

[C]

That's right. The White House has said the tariffs won't take effect for about two months, but that hits right around the time when retailers are stocking up for the holidays. So their decision is basically they can order now, pre order and try to try to beat the tariffs, or they can wait and risk having to pay higher prices.

[B]

Many retailers have been trying to wind down their exposure to China anyway, so it could blunt the impact somewhat. I mean, they haven't really eliminated their exposure to China, but they've been trying to sort of back that down a bit.

[C]

That's right. I think they're trying to tamp down the anxiety around this by saying that they've been reducing their exposure to China anyway. And it's become in many, you know, in many cases, you know, increasingly expensive to manufacture in China. But yes, there is still huge exposure. And upending those extremely complicated supply chains, especially at such short notice, is not easy.

[B]

And with regard to products coming out of China, the share of goods like toys and clothing imported by the US that runs in excess of 60%. And toys and clothing usually wind up on a lot of Christmas lists and a lot of Hanukkah lists around December.

[C]

That is right, Absolutely. Toys are not actually on the list right now of goods that could be hit by tariffs, but sporting goods like baseball gloves are. Clothing, furniture, that's all in the 40 to 60% range in terms of US imports from China. So it's substantial.

[B]

And you point out in your column that retailers have been down this road before. If they were to accelerate buying up goods now to beat the tariffs, they. They could wind up with excess inventory like they did in 2015 and 2016.

[C]

That's right. And that was a difficult time for them. They had too much on the shelves and they had to discount a lot, steep discounts. And that, you know, that hurt profits. In December 2017, they really got that under control, and they performed much better because of that. So, yes, the risk now if they order too much is they wind up with too much on the shelves and they have a bad season like they did in previous years.

[B]

And if they were to relocate production and take production away from China, that's not something you can do really fast. That's like turning around a cruise ship.

[C]

Exactly. These are incredibly complicated supply chains. And they're, you know, they are that way for a reason. And they, you know, to relocate is an expensive undertaking. It's a difficult one. And it's not one that is done quickly.

[B]

All right, that is Hurt on the street columnist Elizabeth Winkler joining us here in our studio. Elizabeth, thanks for being with us.

[C]

My pleasure.

[B]

And that's your money briefing. I'm JR Whalen in New York for the Wall Street Journal.

[D]

Access to affordable credit helps me pay my employees. But I don't really need it.

[E]

Inflation is killing me, but who cares? Big retailers are making record profits. That's why we support the Durbin Marshall credit card bill.

[D]

See, banks and credit unions help small businesses make payroll. This bill would cut the vital resources

[E]

they need while increasing megastore profits. They deserve it, don't they?

[A]

Tell Congress, stop the Durbin Marshall money grab for corporate megastores paid for by

[C]

the Electronic Payments Coalition.