Profit Predators: How Tariffs Can Derail Your eCommerce Growth Strategy

I have been writing for the past couple of months about Candidate/President elect/President Trump’s tariff policies, and how this can impact and severely affect your eCommerce brand. A part of me always doubted whether the tariffs would actually be enacted, and if they would, whether they would be blanket, all encompassing tariffs.

It’s all about the Tariffs

Well, turns out that the threats were real, and tariffs were enacted on China, Canada and Mexico. The tariffs will be 25% on Canadian and Mexican goods (Mexico and Canada currently have a one-month reprieve), 10% on Canadian energy, and an additional 10% tariff on imports from China (on top of current tariffs). Trump imposed these sanctions on the USA’s three biggest trading partners (equalling about 40% of the goods purchased by Americans from around the world), using an emergency act, and tying the tariffs to the fentanyl crisis, illegal migration and trade deficits. As, per Trump, tariffs don’t cause inflation- they cause success. 

Before diving in, one more note of worth- Trump has now been toying with the idea of enacting sanctions on the EU, and possibly on the UK.

Despite the administration’s attempt to color things differently, tariffs will very likely cause inflation, along with a decrease in economic output- as the increase in prices will cause consumers to buy less.

All of this is super important, and I will make sure to keep you posted as events develop- and based on the past- there will be developments. But, in any case, as an eCommerce brand owner, you might be getting worried. And you should be.

Tariffs hurt. Really hurt.

At this point of time, assuming you are shipping goods from China, they are about to get 10% more expensive. Only time will tell whether the end customer will be willing to pay the price, but assuming that economists' dire predictions come true, consumers will not be bearing the full price increase. Which means that you, as an eCommerce brand, will be losing topline sales.

If you do decide to bear the cost increase (or at least part of it), you will be taking a big hit on your margins. 10% is huge, and can really destroy your bottom line. 

Sticky inflation

To top all of this off, the rise in inflation (or at least the fact that it inflation will remain sticky and with us for quite some time) will increase cost of debt (as interest rates won’t come down as they were planned)- which means- even if you were planning on financing with some debt instruments to get through this next period- think again- because you will get hit with higher interest rates.

How to cope

So, what’s next? How should you manage this growing crisis?

1. First, breathe in and breathe out. It will be OK.

2. Second, learn your financials. Cold. Make sure that you have a great handle on your ecommerce accounting. Before figuring out how to save your business and make sure you have enough wiggle room at the margins- make sure your financials are accurate, real-time, and you understand your margins perfectly.

3. Once you are properly ventilated, and have a great understanding of your ecommerce bookkeeping, you can begin to strategize. Perhaps you have enough margin room to absorb some of the added cost, without changing your manufacturing process. That can allow you to gain a larger market share, as your competition will likely be increasing prices more significantly (i.e., the whole 10%).

4. If you cannot absorb this cost, it may be time to move manufacturing out to a different country. If you already have connections elsewhere and have started exploring this- great- if not, now is the time. It may be a prolonged process, and you might need to pay for it with some of your margins in the meanwhile, but in the long run, it could take you far.

5. Another alternative is to partially manufacture abroad, import to the US when the goods have a lower value (and then have less effective dollars paid towards tariffs), and finish manufacturing domestically. If the 15% corporate tax on domestic manufacturing is actually implemented (wouldn’t hold my breath, but it is not impossible), this move can end up being beneficial.

Of course you can fully move manufacturing to the US, but that might not make financial sense for your brand.In short- the US economy looks like it will be pretty choppy in the near future. You need to make sure you are equipped with the best tools to manage your business. You can thank me later.Key takeaways:

1. Tariffs can significantly impact your eCommerce business, potentially increasing product costs by 10% or more and squeezing profit margins.
2. Proactive financial management is crucial: understand your real time accounting thoroughly and be prepared to adapt by exploring alternative manufacturing locations or strategies.
3. You have multiple strategic options to mitigate tariff impacts, including absorbing partial costs, relocating manufacturing, or partially manufacturing goods in different countries.

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