Dive into the implications of tariffs for global retailers! John Mercer, Head of Global Research at Coresight Research, discusses recent tariff announcements, particularly those affecting imports from China. The conversation highlights predominantly consumer sentiment regarding tariffs, and examines how US retailers are responding to the new trade policies through sourcing diversification and inventory management strategies. John also touches on the challenges faced by companies such as Shein and Temu in adapting to tariff-related changes such as the closure of the "de minimis" loophole.
Takeaways
Chapters
00:00 This Week in Research: New Reports and Data
02:28 Focus on China Tariffs and Their Implications
06:20 Consumer Sentiment Regarding Tariffs
08:39 Retailers' Perspectives on Tariffs and Strategies
Read more on how the new tariffs are impacting consumer sentiment and the retail market.
Welcome to Retailistic, the official podcast of Coresight Research for February 11th, 2025. This week, John Mercer, Head of Global Research, is back to discuss tariffs and what they mean for global retailers. But before we talk to John, Georgina Smith, Head of Editorial, is here with her weekly rundown of the new research publishing this week on Corsight.com.
Following on from our recent survey-driven analysis of what US consumers think of tariffs, we will dive further into how these tariffs could impact prices and profits in US retail and the measures that retail companies can take in response, pointing primarily to front-loading and sourcing diversification.
Our Earnings Insight series also continues this week with coverage of fourth quarter 2024 earnings, bringing together recent management commentary from major retailers on their performance. Last week, we covered 20 companies in the CoreSight 100 coverage list, including Levi's, P&G, and Walgreens, which all posted sales growth. This week featured companies include Estee Lauder companies, PepsiCo and Tapestry to name a few.
Elsewhere in research, we will explore the transformative technologies that will shape the US grocery landscape in 2025 and highlight major retailers that are already implementing them. From smarter forecasting to faster checkout, find out how artificial intelligence is underpinning the tech-driven shift in grocery retailing across the supply chain, operations and consumer-facing functions.
At CoreSight Research, we are keeping our finger on the pulse of the transformative and fast-moving AI sector through our research, business practices, events, and the AI Council. Our community of top retailers, thought leaders, and industry influencers deliver actionable insights that empower businesses to navigate AI opportunities and challenges. Please email contactus.coresight.com if you'd like to join the AI Council and stay at the forefront of retail innovation. We'd love to hear from you.
Other new reports to look out for this week include our survey analysis of consumer sentiment and behavior in China and our global roundup of recent developments related to retail shrink and organized retail crime. Finally, I just wanted to say happy Valentine's Day to all those who plan to celebrate on Friday and I hope our listeners enjoy a relaxing President's Day next week. If you're interested in consumers' expectations for spending for these events this year, please check out our recently published proprietary survey analysis on Coresight.com.
Thanks Georgina. Now let's bring in John. This week we're focusing on tariffs. What are you tracking?
So we've seen a raft of tariff announcements. The ones we're really focused on are the ones on China. So as most listeners will have heard, we've had tariffs announced on Canada imports, Mexico imports, but those were paused for a month. So we're really focused on the China ones, which are kind of the residual ones, which there's been no pause on. So that's a 10% tariff on most imports from China. And then alongside that, Trump announced the closure of the de minimis loophole which was allowing companies to import into the US shipments with a value of $800 or less. And very publicly, that's been used by companies such as Shein and Temu, cross border players to import orders for consumers across borders. So yeah, that's really what we're focused on. We've been talking a lot to people recently about the impacts on or potential impacts on Shein and Temu, given we've been flagging those up as big players, big challenges to incumbents in the retail market.
You mentioned that they were postponed. Do you think when they get implemented that will have a major impact on Shein and Temu?
So when they do get implemented, the closure of the de minimis loophole is on paper a threat to Shein and Temu's business model. I think there are some caveats that come with that. We know these companies, ShEin and Temu have been flexing and adapting their business models. They've imbued a greater resilience really through various means. That includes onshore and neared shore distributions. They've been opening distribution centers in and near the US and onboarding of local sellers.
So they've been hiring, bringing on board local marketplace sellers. And in Shein's case, which started off pretty much as a retailer, it's been moving toward a third-party marketplace model. So these are much more diverse businesses than they used to be. They're not pure cross border retailers or marketplaces. They've diversified their business models.
And I think we also believe that all mass market retailers are going to face the challenge of tariffs if those tariffs remain. And if you're a retailer or a marketplace really at the rock bottom of the market in terms of price, if the whole market gets pulled up in terms of price, then we think those players are still going to be at the rock bottom, even if they end up lifting up slightly. Now they do have potentially the de minimis challenge.
We think so that Temo especially is likely to continue to be subsidized by its parent company, PDD Holdings. You know, we've seen Timo come into the US market and other markets extremely aggressively on price, extremely aggressively also on advertising its parent company, PDD Holdings has poured money into advertising Temu in the markets it's entered. Given it's spent so much on gaining a foothold in those markets, we don't think that it's going to seed that kind of share willingly. And we think that Temu's parent company is likely to remain willing to invest to hold on to that market share. So it's a challenge, particularly in terms of reaching profitability for Temu and maintaining profitability for Shein. But we think it's a challenge that the companies will adapt to.
And yeah, we don't therefore think that the challenge to incumbent retailers from Shein and Temu is going to go away fast. We think there's still going to grow and they're going to be a growing challenge to retailers in the US and other markets.
So you mentioned those subsidies, essentially the parent company of Temu is then subsidizing either their products or their business expenses to deliver those products into the US market at below the actual cost of those products.
That's what appears to be happening. They're effectively selling loss leaders. They're selling products that they're not making a profit on, as far as we understand it. They're selling at ultra-low prices, so they're not recouping costs on those products. We envisage that kind of effective subsidy would continue if there's raised costs in the case of de minimis provisions closing and also in the case of tariffs on exports from China.
How long could a company maintain that if they're subsidizing the products at below cost? Is that something they could do indefinitely? I mean, where does the money come from?
I mean, that's a great question. PDD is a public company. It definitely isn't probable or likely. You know, there was probably a pathway to profitability for Temu over the course of a few years without these challenges. That pathway may need to be extended.
So what have consumers told us about how they feel about tariffs?
So consumers, according to Coresight surveys, are pretty negative on tariffs. So we asked consumers a range of questions, including whether they thought tariffs would have a negative or positive impact on the economy and also on their personal finances. About half thought these tariffs would have a negative impact on both the economy and their personal finances. It's roughly 50% for each.
That doesn't mean the other half thought it was positive because we've got some don't knows and no impacts in there as well. So only about 31 % thought tariffs would have a positive impact overall on the economy. About 15% thought tariffs would have a positive impact on their own personal finances. So the next opinion is that tariffs will be negative for their own finances and for the economy.
And when we asked consumers what they thought the positive and negative effects of tariffs may be, the option with by far the highest number of responses was higher prices for goods. So 61 % approximately of respondents think that tariffs may be inflationary for products. That's well above the figures we saw for any other option. And in terms of economic growth, about 28% expect tariffs to slow US economic growth. That compares to about 23% who expect it to increase growth. So again, there's a net negative perception of tariffs on the economy.
And overall, about one in three of our surveyed respondents couldn't identify any positive advantages from tariffs. That compared to about one in six who couldn't perceive any negative drawbacks to tariffs. So the weight of opinion, according to those we've surveyed, is predominantly negative. There are some minority, sizable minorities, who think that there are positive impacts, but they are outweighed by the negative perceptions.
And what about retailers? Do they have a point of view on the tariffs?
Yep. So we've been asking retailers, we've been assessing what they've been saying. And it very much varies by sector, by category they're in. Some companies have pointed to limited overseas production, limited number of imports. We heard this from CPGs, for instance, that a lot of what they produce doesn't come from places like China. Same for some retailers.
There is kind of a heightened sense of caution amongst the toy industry, we heard that close to 80% of all toys in the US come from China, so tariffs are a risk to that sector. And in earnings commentary, we've heard from companies such as Costco that they expected to pull forward some inventory in order to attempt to beat tariffs. A number of other retailers and consumer goods companies have noted that they diversified their sourcing on the back of previous tariffs from a few years ago. So quite a number of companies are pointing to that kind of diversification is reducing their exposure to China.
So that's kind of what we expect more companies to do over the longer term. We think it won't necessarily solve the problem in the near term, but over the coming years, we expect that pattern of diversification in sourcing to continue as retailers and brand owners look to reduce their exposure and so their risk in terms of tariffs.
People respond to incentives, I guess, if there's a country like El Salvador or something where China has a free trade agreement and we have a free trade agreement. Temu could just build a giant factory in El Salvador and reroute all their stuff through there to avoid the tariffs.
As long as they're a manufacturing, could do, yeah, what they can't do is just ship into one destination, ship out again. As you kind of alluded to, you need to be manufacturing. So yes, in theory, cross-border players and other players could shift some of their sourcing to countries like that in terms of manufacturing. Yeah, as long as they're doing manufacturing, then they could.
Well, it is an important and fascinating topic. Thank you for taking some time out of your day to give us your perspective. Try and stay warm in the London weather and we hope to see you back soon.
Thank you very much.
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