Dive Brief:
- Williams-Sonoma is moving several of its goods out of China as it undergoes an "aggressive plan" to mitigate tariff risks, company executives told investors on a recent earnings call.
- The retailer's supply chain team is working with its vendors to reduce costs in other aspects of business, such as "janitorial, data processing, contingent labor and utilities to name a few," CEO Laura Alber said on the call.
- During the third quarter of 2018, Williams-Sonoma experienced shipment delays coming out of China due to congestion — a result of U.S. importers rushing shipments out of the country before tariffs increase and a higher than anticipated number of dropship sales.
Dive Insight:
Williams-Sonoma's close relationship with its vendors enables the retailer to adjust its supply chain as risks emerge.
"We're very lucky that we're vertically integrated. We have a multicountry supply chain," Alber said. Vertical integration and a diverse supplier base gives the retailer flexibility in sourcing and control over cost and product quality.
Sourcing flexibility is critical when a major procurement risk event comes up, such as tariffs on $200 billion worth of imports from China. Williams-Sonoma said 15% of its total cost of goods sold is subject to the latest round of tariffs with China.
"We are looking to mitigate every dollar next year of the possible tariff risks," Alber said. Williams-Sonoma will work toward that goal through a combination of reducing costs in indirect spend areas and moving goods out of China.
The China congestion issue the retailer experienced in the last quarter shows it's not the only business looking to move goods out of the country and rush imports before tariffs rise from 10% to 25% on Jan. 1, 2019.
China's exports to the U.S. are growing, and ports are seeing record volumes — although ports worry volumes will plummet early next year as higher tariff rates kick in.
