by Bryan Nella, GT Nexus
Retailers and their supply chains are no strangers to outside pressures and disruptive forces that impact margins, revenue and shareholder value. CNBC recently called out that traditional retailers are being "decimated" by tech: "As a group, traditional retail stocks have long faltered against competition from e-retailers like Amazon; the S&P 500 multiline retailing group is nearly 21 percent off its 52-week highs and down nearly 16 percent over the last year, while the S&P 500 Internet & Catalog Retail industry group is up 46 percent in the same time."1
Looking beyond Amazon and e-commerce, the latest major threat is the border adjustment tax (BAT). The potential friction could have a rippling effect across retail, impacting the full supply chain, starting at suppliers and factories, and extending all the way to the end consumer. At the heart of the issue is the challenge of absorbing new added costs.
The Impact of Tariffs and Protectionism
Last Fall, a study of 250 retail executives quantified the fears and challenges posed by tariffs.2 It turns out that 46% saw this coming in September, prior to the U.S. election, stating back then that they expected to be impacted by tariffs and protectionist measures derived from the trade positions of the two major U.S. presidential candidates. Their expected impact?
44% expect higher cost of goods
22% expect higher risk of delays or disruptions
20% expect more red tape
17% expect challenges procuring materials and resources
How would retailers respond?
36% would raise prices
27% would negotiate lower costs with suppliers
14% would cut out production costs
8% would move production to low tariff countries
The "Potential" Impact Becomes Real
Fast forward six months and the perceived threat has crystallized into a more tangible challenge. The border adjustment tax looms over retailers, who rely heavily on imported goods. The Wall Street Journal last month provided an example of the potential impact. Best Buy, it stated, imports two-thirds of its good. Another 20% are foreign made from domestic suppliers. The impact of the tax law? Best Buy's current $600 million tax bill would balloon to $3.8 billion.3
Retail analyst Oliver Chen told CNBC PowerLunch that the law could impact retail earnings per share by 50 percent or more.4 The National Retail Federation (NRF) has suggested that the tax policy would increase consumer costs on food, gas, clothing and prescription medicines.5 The average family could pay as much as $1,700 in the first year.6
Friction from new challenges such as the border tax are to be expected. It's a fact of life in the world of retail supply chain. There is no easy button or silver bullet for handling risks, whether it be shipment delays, labor strikes, or political issues. Retailers can't plan for every risk and challenge that may come up day-to-day. But they can seek out a broader strategy to enable more agile and fluid supply chain movement. They can deploy flexible infrastructure that enables inventory or orders to be shifted or adjusted to steer clear of higher costs or risks of delay. The ability to shift gears and move inventory from different parties and regions can mean the difference in millions of dollars in revenue, by sidestepping a port strike, natural disaster or tariff. For example, if an event occurs knocking a supplier offline or crippling an ocean carrier, the ability to assess inventory at risk and know the available alternative goods, routes or parties in minimal time is a critical advantage. If a retailer can swap out suppliers or factories rapidly and deploy suppliers in other regions – perhaps even domestic vendors to avoid a border tax – then they at least have a fighting chance of minimizing the impact.
But this is no easy task. It requires multi-tier connectivity. It requires a network that can serve as a foundation for communication, collaboration and visibility. When each node in the network can collaborate and share data regarding the true state of business at that moment, then moves can be made in the best interests of the end-consumer. Risks may be avoided. Friction may be minimized. Negative impacts may be mitigated.
Bryan Nella is Senior Director of Corporate Communications at GT Nexus, the world's largest cloud-based supply chain network. He has more than 12 years of experience distilling complex solutions into simplified concepts within the enterprise software and extra-enterprise software space. Prior to joining GT Nexus, Bryan held numerous positions in the technology practice at global public relations agency Burson-Marsteller, where he delivered media relations and communications services to clients such as SAP. In previous roles he has worked with clients such as IBM, MasterCard and U.S. Trust. Bryan holds a BA in Mass Communications from Iona College and a MS in Management Communications from Manhattanville College.
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