Co-President Robert Fiveash shares recent changes and impacts on Tariffs in this Open Letter to Brand Fuel’s valued clients.
Friends of Brand Fuel,
The deepening trade war between the U.S. and China is not only worrisome for the broader economy, it is especially challenging to our industry and potentially to you.
But it’s not all bad news.
Specific only to components from China – while a 10% or 25% increase on imported goods is certainly substantial, the decorating and finishing/packaging/add-ons (usually done in the U.S.) can together make up a large portion of an inexpensive item’s overall final price.
Additionally, only those items loaded on a container ship in China on or after May 10th will get hit by the increase to 25% – those loaded before May 10th would remain at the initial 10% tariff rate. This means that not only will existing U.S. inventory of imported goods not climb to the 25% rate, goods “on the water” for 20 days or so after May 10th won’t either.
This gives us a chance to interact more with you. To discuss the complexities of this fascinating industry and together, to show how thoughtful choices create the desired impact. That’s a big bonus for us all. The tariff discussions we’ve already had with many of you provided just those opportunities, and we hope this open letter reaches every Brand Fuel client, large and small, across the world.
So, what’s on the tariffs list and what’s not?
Promo Industry Categories Impacted: Stationary, Bags (backpacks, totes, etc.), some Tech (charging cables, for example), some Drinkware (mugs and stainless tumblers, for example)
Headwear, and more.
Not Impacted (yet): Writing Instruments (the industry’s largest category outside of Wearables)
While the tariffs hit many industries in both countries, we will focus on the promotional products industry. Let’s take the traditional promotional backpack, for example:
- The imported backpack costs a supplier/wholesaler $10 before September of 2018.
- That same backpack cost the supplier/wholesaler $11 (a 10% increase) after September 24, 2018.
- That same backpack cost the supplier/wholesaler $12.50 (an increase to 25%) after May 10, 2019.
Who pays for the increases?
In the case of the tariffs, our suppliers/wholesalers will typically try to lessen the blow by not passing on 100% of the tariffs, and you’ll see Brand Fuel do the same by absorbing some costs. And we’ll likely see clients, certainly those that we’ve communicated well with and have educated on the industry, accept that “Tariffs Happen” (cue the bumper sticker) and understand that we’ll all have to work together to keep all parties happy and healthy. Really, it’s no different than in the no-tariffs world – we all do best when we communicate well and act as partners.
The primary challenges the tariffs create:
- Increased costs to end-buyers.
- Uncertainty and difficulty budgeting.
- Limited shelf-life (and additional language) for quotes – it’s now necessary to limit the period of quote accuracy to 30 days.
- Confusing printed catalog pricing, with some showing a range, others showing pricing at 0%/10%/25%, and still others showing an asterisk or QR code.
- Opportunities for the unscrupulous to gouge – it’s important to know what categories are impacted and which are not.
Are there any silver linings? What can we do?
- The demise of the printed catalog – our website and your account management team are where to look for the most current pricing. It’s time to save some trees!
- Increased U.S. production – for the U.S. producers of promotional products, the tariffs have created a massive influx of business (and employment).
- Feature Made in U.S.A. items – in many cases, clients purport to want Made in U.S.A., but balk at the price when compared to Chinese goods. The pricing gap is closing more and more.
- We will look at other low cost, high quality manufacturers in Vietnam, Malaysia and India, for alternatives. This should also bring more variety to our conversation.
- We’ll need to be even more creative and show you other options – this is where our value shines through, and that’s good for both of us.
- The tariffs create opportunities for more discussion and education around the complexities of this industry, and that’s good for both of us.
- Despite the last 10 years of essentially stagnant price increases (due to ever-lower production costs and ever-increasing efficiencies), it’s important to know that branded merch prices CAN (and sometimes will) go up. Deflation in this industry can lead to lower quality products and a commodity mindset – not what we each want if ROI is valued!
In summation, you can count on Brand Fuel to monitor tariffs, understand them, and advise to you the impacts to your business, your budget and your planning. Our goal (in all things) is to protect you as best we can. Part of that happens through communication and education, part is through creative product suggestions and sourcing, and the last part is through working with you on pricing.
This industry has always managed to innovate through challenging times, and this time will be no different. As is usually the case in such times, the best firms will rise to the occasion and show their true colors.
Thank you for your trust in Brand Fuel – we look forward to discussing the tariffs with you as the situation evolves and show you how we can partner further to minimize their impact and maximize your investment.
Co-President, Brand Fuel
Have any questions? Contact us anytime.