Tariffize – Adapting Your Business to a Policy of Tariffs

Retailers crave certainty, but the best you can get is probability. And right now, the probability of tariffs affecting your business is no longer theoretical—it’s reality. As of today, tariffs on Canadian and Mexican imports under Trump’s policy have officially taken effect, bringing another layer of cost pressure.

The likelihood of these tariffs increasing prices? Also, yes. That’s disappointing, considering wholesale prices have largely stabilized over the past year. Supply chains are back to normal, transportation costs have settled, and businesses were finally seeing some relief.

But now, the bigger question is: Can your customers absorb another price increase? Since March 2022, footwear and apparel prices have risen between 21% and 23%. If your business is flat or growing by 6-8%, most of that is due to price increases—not higher unit sales. However, if you’re seeing double-digit growth, you’re expanding—whether by selling more units, offering premium products, or finding new bestsellers.

How do you manage a business in a world of policy-driven price shifts? Fortunately, it’s not just guesswork, it’s about adapting strategically.

Comprehensive Strategies to Minimize the Risk of Tariffs

Below are comprehensive strategies to minimize the risk of tariffs:

Gather Reliable Data : Probability is all about the likelihood of outcomes based on data. Ensure your data is accurate, representative, and sufficient for meaningful analysis. Management One does an excellent job scrubbing your data for accuracy, and then measures expected results against your own trends and has sufficient data for deeper, more meaningful analysis. For example, M1 knows that premium denim is currently trending well. Your forecasts are going to show an aggressive trend even if your sales have not caught up with the overall trend of the classification.
Make Informed Decisions : Calculate the expected value of different actions. This requires some testing but will help you guide future longer-term decisions. For example, experiment with different tactics to drive traffic. Try different approaches for different events. One could be promotional, another might be exclusive and limited offer, using scarcity as a motivator, and a third might be educational. There are also other types of tactics, and you might find some work better for certain types of products. The goal is to learn what went well and what could have gone better and use that to improve the probability of improved future results.
Risk Assessment : Evaluate the probabilities of different risks occurring and their potential impact. Focus on strategies that mitigate high-probability, high-impact risks. A good example here is Private Label. Even if you are small, the opportunity is still an option. It may sound that private label is a substantial risk, but if you are a good merchant who knows your customer you have already mitigated part of that risk.

Here are additional methods for making informed business decisions about specific areas within your company using reliable data and risk assessment :

Focus on Your Selling Metrics

The number one focus is to raise your average sales per transaction/customer. The reason is that if prices increase, your staff will be focused on sustaining the higher transaction amount per customer. If you are at $100 per average sale per customer and can raise it to $120 or higher per average sale, then you will absorb any increases in prices.
As we go through holiday, it will be wise to make an extra attempt to move new customers into returning clients. A larger client base is insurance against higher prices as you have a larger pool to attract business.
Invest time in sales coaching and make it a weekly and daily activity.

Focus on Your Vendor Metrics

Analyze vendor styles that had 80% sell before markdowns. This will provide insight into where to go deep to focus on going deep rather than wide. In cases you had above 90% sell through in less than 60 days, ask yourself if buying more would have increased sales.
Analyze the last 12 months versus previous 12 months units sold and compared to revenue for both periods. For example, what is the relationship between your sales and the number of units sold compared year over year.
Revisit upcoming on-order. How do you compare the budget? Do you have unnecessary duplication?

Pay Attention to Your Assortments

Over-assorting becomes an even greater risk. Buy in depth and be meaningful to the vendors that represent your greatest ROI. Having fewer vendors allows you to be meaningful to a select group and provide an opportunity to negotiate and potentially obtain better prices and terms.
Look for opportunities with domestic vendors or expand categories that provide higher margins, allowing you to sustain your margins. Where possible, look to go upscale as higher earning customers will not have the same price sensitivity.

Maintain Your Initial Markups

Do not be fooled into thinking that taking a lower initial markup will sustain or increase demand. Cost increases will be across the board and impact on all your competitors. Initial Markup is a strategy that is critical in managing your margins to be profitable. Tampering them can undermine your overall profitability.
Do the math and as new goods land, change your pricing to reflect new vendor pricing. Do not wait for tariffs to hit. This will give you an insight into your customers’ tolerance for higher prices. Every sale at new prices also provides a future cushion for potential markdowns.

Change the Flow of Goods

Work hard to manage your flow of goods so you are not missing product during key selling periods.
It is critical your first-of-month inventory is both fresh and close to plan.

Research

Check with your vendors, especially key vendors, and discover what they are doing and their expected actions.
Spend time on marketplaces like Faire to explore new vendors and classifications. There is reduced risk, and new orders have a return policy.

Change, even when it is scary, presents opportunities. We can either let events dictate our future or take control and be proactive. Do not let situations corner you; seize the initiative and create your own outcomes.

Summary

This article discusses how the certainty retailers desire can only be met with probabilities, especially when dealing with tariffs. The likelihood of tariffs raising prices is high, and businesses must adapt proactively. By gathering reliable data, making informed decisions, and assessing risks effectively, retailers can manage challenges such as rising costs and shifting consumer tolerance for price increases.

Strategies include focusing on selling metrics, vendor metrics, assortments, maintaining strong initial markups, and adjusting the flow of goods. Emphasizing research and a larger, loyal customer base can help retailers weather changes in tariffs while seizing opportunities for growth.

“Change, even when it is scary, presents opportunities.”

Real-World Examples of Tariff Impact

Below are hypothetical scenarios illustrating how tariffs and pricing uncertainties can affect different types of retailers.

A footwear retailer faces a sudden increase in imported shoe costs. Without adjusting pricing strategies or negotiating better terms, they experience an abrupt drop in margin when tariffs hit.
A specialty apparel store shifts sourcing to domestic vendors but fails to adequately research consumer demand. While they avoid tariff costs, they overstock on styles that don’t align with local trends.
A boutique expands its private-label collection to mitigate tariff risk on branded goods. By deeply understanding its customers, the store successfully introduces in-house products at competitive prices.

Onwards and Upwards,

Marc Weiss

Co-founder, Management One