Navigating the Upcoming Tariffs: Mitigating Retail Risk

As tariffs loom on the horizon, the retail industry faces increasing challenges, forcing executives to prepare for supply chain disruptions and navigate declining customer sentiment. As pressures increase, retailers are grappling with higher import costs, which can lead to increased prices for consumers, narrower profit margins, and potential shifts in purchasing behavior. To mitigate these risks, retail leaders need to adopt a proactive approach. 

Latest Tariff Developments: All Eyes on April 2nd

According to a PWC report, tariffs (including the reciprocal tariffs expected to take effect April 2nd) could impact the consumer products sector by up to $134B, roughly five times the current tariff amount of $27B—and the apparel industry is taking the biggest hit. 

But tariff structures are often subject to change, and it’s no different this time around. Retail leaders must stay informed about potential shifts in trade policies and tariffs to stay ahead of the curve and react swiftly to minimize their impact. Understanding the landscape and making informed decisions will be key to sustaining growth in the face of these challenges. By staying adaptable and leveraging supply chain technology, retail leaders can navigate the turbulence of rising tariffs and minimize the impact on their bottom lines. 

Preserve Margins, Embrace Technology

Investing in advanced supply chain and inventory management technologies can help retailers track and adjust quickly to changing tariffs, preserving margins, and ensuring more efficient operations to offset tariff-induced price hikes. AI-powered forecasting tools can help predict shifts in demand and adjust purchase orders accordingly, minimizing waste and cutting costs.  These technologies help streamline operations, improve efficiency, and reduce inventory risks.

Predictive AI is a powerful tool for inventory productivity, and empower retail leaders to get ahead of inventory management issues. AI-powered inventory management systems enable retailers to forecast demand with greater accuracy by analyzing historical sales data, seasonal trends, and market conditions. With tariffs and supply chain disruptions affecting product availability and pricing, having a more accurate forecast helps retailers prepare for changes in demand before they become a problem. By optimizing stock levels based on these predictions, retailers can avoid overstocking or stockouts that significantly harm profitability—which is crucial when costs are rising. 

Retailers can also use inventory management solutions to identify potential bottlenecks in the supply chain, monitor lead times, and track goods across multiple touchpoints. Real-time inventory tracking allows retailers to get a clear picture of stock levels, shipments, and sales across all channels. This is especially important during periods of uncertainty, such as when tariffs are imposed or shipping delays occur. This level of visibility enables quick decision-making, whether it’s reordering products from alternative suppliers or shifting inventory from overstocked locations to those facing higher demand.

To Negotiate or Diversify: Supplier Relationships and Sourcing Management

Many retail leaders are leaning on positive relationships with vendors amid tariff uncertainties, pushing for price cuts, negotiating better terms, or exploring long-term contracts that can offer more stability and flexibility. Others are looking elsewhere, reducing supplier dependency by diversifying sourcing to mitigate tariff impact. 

“With a sourcing organization that’s decades old, our team has a lot of experience in navigating this type of volatility. They’re monitoring the situation carefully and we expect to successfully navigate through any changes, just like we have in the past. However, given near-term uncertainty, we’ll be looking to maintain a larger-than-normal cushion on the balance sheet.” - Jim Lee, CFO Target

Inventory management solutions enable retailers to manage supplier relationships more effectively, saving costs by streamlining operations. Determine the most efficient sources of products by tracking lead times, costs, and shipment schedules from multiple suppliers; if one supplier faces an increase in tariffs, retailers can switch to alternative suppliers who offer more favorable pricing.

Customer Sentiment and Brand Loyalty

While the US economy has not yet experienced a serious slowdown, signs of consumer stress have begun to emerge; it’s no secret that shoppers are worried about the price hikes associated with tariffs. Reuters reported the US consumer confidence index has plummeted to a four-year low in March. With consumers being more selective about where they spend their hard-earned dollars, it’s more important than ever to optimize the customer experience and preserve brand loyalty. 

Inventory management solutions ensure retailers are stocked with high-demand products and can adapt to shifting consumer behavior. Whether it’s fulfilling online orders efficiently or making sure physical stores have adequate inventory, retail assortment management solutions ensure retailers are able to meet customers where they are with the products they want; these systems reduce the risk of stockouts, improving customer satisfaction and loyalty by ensuring that popular products remain available. Through predictive AI and demand forecasting, retailers are able to anticipate how consumers respond to price changes and proactively offer personalized promotions to foster loyalty.

“Tariffs are something we’ve managed for many years, we’ll just continue to manage that. We can’t predict what will happen in the future, but we can manage it really well. And we’re wired to try and save people money. So that will be our ultimate goal.” - Doug McMillon, CEO Walmart

Adapting to Retail Tariff Pressures

As retailers navigate the immediate impacts of tariffs on supply and demand, AI-driven inventory management solutions provide a crucial edge in preserving margins, managing supplier relations, and enhancing consumer experiences. By using technology to streamline operations and gain real-time insights, retail leaders can make dynamic, informed decisions that address challenges posed by rising tariffs, supply chain disruptions, and fluctuating consumer demand. In the face of uncertainty, technology is not just a tool; it’s a vital strategy for resilience and competitiveness in the retail industry.

7thonline has been providing industry-specific supply chain and inventory management solutions to the global retail industry since 1999, with powerful predictive AI capabilities to navigate fluctuating consumer demand. To learn more about our supply chain technology and inventory management solutions, email us at info@7thonline.com or book a demo with our team.