Dive Brief:
- Williams-Sonoma planned for the tariff rate on $200 billion worth of Chinese imports to increase from 10% to 25% in 2019. Executives on the company's fourth-quarter earnings call Wednesday offered details of what they called in November an "aggressive plan" to mitigate the effect of tariffs.
- That plan has so far included moving some sourcing out of China, negotiating better prices with suppliers, moving upholstery work into the U.S. and consolidating contracts to make sure there were no costs going to unnecessary players.
- "Between all these moves and also some mix shifts and some selective price increases we’re prepared for the worst," CEO Laura Alber said on the call.
Dive Insight:
As the trade war ramped up in 2018, businesses had a choice: plan for 2019 as if the tariff rate will stick at 10%,;or forecast, plan and execute as if they will increase to 25%. Dollar Tree, La-Z-Boy and John Deere, and now Williams-Sonoma, shared on earnings calls they are preparing for the worst and described their efforts to mitigate 25% tariffs.
The question remains what impact planning for a tariff increase will have on the balance sheet this time next year — especially if the Trump administration continues to demonstrate a disinclination to raise tariffs beyond 10%. Dollar Tree's CEO Gary Philbin earlier this month said no increase presents even greater upside for the discount retailers since lower tariffs than planned could boost margins.
Major supply chain changes like the ones Alber described don't come cheap, and Williams-Sonoma expects margins to remain flat from 2018 to 2019.
"We have, in fact, included [the 25% tariff rate] in all of our guidance for the full year and is factored into our margins because we're covering that 100%, but it could, shorter term, put pressure on our gross margin," said CFO Julie Whalen.
