Tariff Strategies for Small Businesses - What are you doing?

[MudFire_Dex]

Interested to know how y'all are prepping for tariffs or what you are doing/not doing because of them. We backburnered a second location for a variety of reasons last year but this year were approached by a property owner and there were some concerns about the location and timing  but one of them was the unknown expense of equipment and supplies moving forward. Kilns use a lot of steel and imported parts and supplies as do a lot of our glazes and just basic things that every business uses that aren't made in the us - reading labels has been very enlightening about just how many things we use aren't made in the US.

I am very interested to know y'all's strategies. I see the Square community as a far deeper resource than just to talk about Square - we can help each other navigate Square but I don't often get to chat with other business owners and this forum for me has been very helpful and inspiring both as reassurance and as a challenge to a way that I normally think.

Here's what we are doing:
* Small price increase on membership and events (we have only raised prices 2x in 13 years)
* Buying in bulk for things we have room to store - we bought a kiln to have on hand and are considering a few more pottery wheels
* Discontinuing materials in our glazes that are coming from further away to focus on domestic suppliers 

I picked a few articles to share below about strategies to negotiate with suppliers and interesting twists such as pricing things to sell in house instead of paying a fee to the supplier. There were a lot of things I hadn't considered.

'I can get my Christmas tree order' - firms give sigh of relief at tariff truce
Tariffs could put them under, some small business owners say - CBS News

Are you changing expansion plans?
Freezing hiring? firing?
Changing prices?
Making deals/negotiations? If so I think it could help others to know what you are doing. 

I don't have a retail oriented business but have advised my mentees to raise their salary a little as well in case they experience expenses shifting in purchasing clay and supplies to make their pottery.

[DinaLRosenberg]

This year has been like trying to drive in a torrential rainstorm... more by "feel" and "intuition" and a complete lack of visibility.

Every time we think we know the conditions- BAM- they change.

Right now we're holding a good amount of inventory and our price increases have been nominal and on a case-by-case basis. Most everything we sell in the shop comes from somewhere- quartz from Brazil, crystals from India, books printed in china.

We are being as cautious with our buying as we can. In the past we used to buy 50 of something now we buy 15-20 and purchase more when we need to.

We do hold a lot of crystal inventory- so we're pretty good right now anyway... 

We're attending a trade show this weekend so we'll see what prices are up to and I will report back.

[MudFire_Dex]

I'd be curious about what you are seeing at the trade shows. I know a lot of retailers are trying to sell things at any cost now to bank funds so a lot of costs haven't been passed to consumers yet. 

During Covid shipping was a killer - a pallet of clay shipped from Pittsburgh to Atlanta was near $700 and normally runs under $300 so I'm wondering about that and the cost of employment with factories and warehouses losing employees as well due to immigration concerns.

We don't do a lot of retail but on of our primary concerns is energy costs because of firing kilns and many glaze materials are shipped from EU, China, etc. I stocked up a bit but our enemy is storage. 

[DinaLRosenberg]

Was just at a show this past weekend. Prices over all have ticked up SLIGHTLY nothing crazy. There is one vendor of Indian Silver we have purchased from before. India now has 40% tariff I believe. They already raised their prices and their booth was a GHOST town. We were looking at their items as we've had success with them before but we just couldn't make it work and there were many other alternatives.

I do think for trade show purposes it is still a little too early to tell- a lot of the materials we were looking at were likely landed in US way before tariffs turned back on.

We have another show in a few weeks in Denver- we'll see what happens, We have made our trip less expensive. We typically travel with 3 people- this Denver 2. We typically rent an AirBnB and this time we're in a suite hotel which is surprising much less for the amount of time we're staying.

[rtfulk]

We've been lucky, the Chinese economy isn't doing to well and the 3 factories we deal with are willing to pay any tariffs we encounter. Also people has panicked over the tariffs and cancelled orders so we are buying that product cheaper than what we were paying a year ago.  Shipping is what's killing us right now, when we can ship by sea it's cheap, but air freight is high right now.

[JUYBoutique20]

Being in Alaska I don't have the choice of ship by sea so shipping fees have definitely increase for us.

[VanKalkerFarms]

Container shipping is such a bear.  We've imported 6 containers from China, and it is insane the fluctuation in price on a near-daily basis.  Our cheapest 40' HC was just over 2k, and the most expensive was pushing 7 or just over.  Makes a big difference in the cost of goods inside the container.

[CareyJo]

That much of a fluctuation is crazy!

[doc_choc]

@VanKalkerFarms its hard going out there for sure no matter where you are based and what business you run. It will be interesting to see how things play out with inflationary pressures one side and the cost of living the other. One thing is for sure it's going to take some time to stabilize the global economy, perhaps generations. 😵

[indianathomas]

For Keva.com, we’ve been taking it one day at a time. Things are changing so fast that we’ve really had to take a wait-and-see approach. The biggest factor in waiting is watching what our competitors are doing - so far, they haven’t raised prices.

We did have one incident where a pallet of açaí got stuck in the Port of Long Beach. That pallet was meant for a major event, and we had already paid the invoice for the product. However, it was held because the tariff needed to be paid. The manufacturer didn’t want to pay the tariff, and neither did we, so it remained stuck. Eventually, the manufacturer absorbed the fee. In the meantime, we had to source açaí from a different supplier to ensure we were stocked and ready to open for the event.

[MudFire_Dex]

Can you share some of your negotiation strategy with other biz owners? I know when we worked more in a retail environment we promised order amounts or frequency to get other terms or discounts we needed. I know a lot of people here are starting out and would love some tips 🙂

[JUYBoutique20]

So far, my vendors have chosen to absorb the tariff cost per say but my shipping price has increased (which means I'm paying those tariffs anyway).  I've raised prices a bit, but I usually do at the beginning of the year and mid-year depending on the business needs.

[CoopersGifts]

I've raised prices about a year ago. With that, I don't need to raise them anytime soon. I still rank lower than the competitors by about $20. I just try not to overstock on items that expire, buy in bulk when necassary, and to make sure I stay constant with how many items are in each Basket.I buy from vendors I know that have the product without the tariffs. 

[jonesj_osetta]

Thanks for the update. Hunnia Kay Shop Design LLC brand and I am trying to get sales at this point and could use a little advice on how to get new customers.

[DinaLRosenberg]

Can you tell us about your business? What you sell and what your market is?

[CareyJo]

Our business is such a different animal...

Being in the service industry changes everything.  We do not experience any of the issues that you all do because we do not stock product.  We don't sell off the shelf so to speak.  We stock many common parts that can repair a piece of equipment in a pinch, but by many, I mean a few dozen in total, from a variety of parts.  When we do a job for a customer that isn't just a simple or common fix, we're special ordering those parts.  Always.  If the shipping is not standard, it gets passed onto the customer and we tell them up front in their bid to repair.  If we pay the shipping than we have a tax deduction, which is what we usually do.  And by usually, I mean under $50.

Our bread and butter comes from installations.  Most of the work we do is replacing aged out equipment.  Our main suppliers do not pass freight on to us very often.  It's usually free because of the volume we order and because our locations are local in state.  They have their own trucking system and move things from one town to the next.  They have dozens of dealers like us across the state that they deliver to on a daily basis.  Unless they have a special order for a part that's coming straight from the manufacturer to us, they don't usually charge us freight.  Our suppliers deal with the largest manufacturers in the country and buy in bulk from them and stock warehouses full of stuff.

As far as the tariffs go, we've been dealing with price increases due to them since the beginning of 2020 when the first round hit.  We had 8 supplier price increases that year alone and dozens since.  Most all of the materials that make up the equipment we sell has to be purchased in pieces, or components, and come from out of country.  Our manufacturers build equipment by pulling components from all over the place to put one piece of equipment together.  And yes, everything is built with metal and the price increases have been very large.  We saw as high as 8% in one increase.

Because we purchase equipment per job, we are never sitting on inventory.  We quote per job as well.  Each job gets a price put together based on current price from our supplier at that time.  The client has up to 30 days to accept the bid or a price increase is possible.  Our labor rate is priced by the hour of course and we've only raised it once in 8 years.  I've argued with my husband about increasing it and he disagrees with me.  He wants to remain low because it's hard for some people to afford.  While that's true, we also need to be competitive and about 90% of companies across the state are MUCH higher than we are.  We could afford to go up just a little but he keeps fighting me.  He's got til January 1 before the fight ends, lol...  I will win!  lol

Our pricing on parts and equipment is also the same across the board and will never increase.  We charge a percentage of whatever we sell to a customer.  So they don't actually "see" the tariffs because it's built into the price that we bid, based on what our supplier sells it to us for.  I will say that prices overall since Covid have almost tripled what we were paying before.  In our line of work, we don't hear any complaints.  Customers just simply know that this is what the price is and there's nothing we can do about it.  Unless they got a quote from us years ago and chose to wait and re-quote now, they would never see the increase.  It is not really public.  It's different than buying a can of beans at the store, each month for a year and watching the price increase. 

We feel bad that our customers have to pay so much but there's honestly nothing we can do about it.  If we choose to discount our markup on parts/equipment or decrease our labor rate, then we are literally hurting ourselves.  It's just the cost of doing business and we don't anticipate it going lower.  Ever.  The new R454B has created HUGE supply chain issues and those issues are being passed onto the customer because no company on the planet can afford to absorb those costs.

Sorry that I don't have any solutions to offer.  I feel for what y'all are going through!

[indianathomas]

For us at Keva Juice www.keva.com, it's a little bit of... all of the above.    Things are coming at us so fast that we're having to take a reactionary approach and a proactive approach.  We have a few stores in the pipeline for expansion, but have taken an incredibly aggressive approach on what locations we will go into.  Let's take expansion as an example:

Attached is the LOI that we did for a new location in Midtown Reno.  Because of the cost of infrastructure and repair, the discontinuation of R-22 refrigerant, and tariffs, we're requiring landlords to update their buildings.  Any air conditioning unit that is more than 10 years old needs to be replaced.  We also require this on our lease renewals.  An air conditioner that was $4,000 to $6,000 in 2019 will now cost $12,000 to $30,000.   We've also extended our rent abatement periods for construction to a minimum of 6 months up to 12 months due to contractor and supply shortages.  All existing locations that we might move into need to be remodel-ready.  This includes mold mitigation, aspects, and working grease interceptors.

In the attached example, although we were going to sign a 10-year lease, the landlord opted for an inexperienced tenant instead of us.  We had the backing and financial ability to pay rent even if the location is not profitable, yet an inexperienced tenant will learn the harsh reality of how these leases work.

Price Increases:

We have increased some of our prices 7% due to costs.  We have only increased prices in locations that can support the increase.  

Making Deals:

We work on this every day, bit by bit.  Talking to our distributors and looking at the best valued ingredients.  The problem in our case is that our ingredients are proprietary, so it makes things tough.

Downsizing / Pricing:

We have also brought in a smaller size for the same price as our regular size.

[CareyJo]

As the owner of an HVAC company - I would recommend that you request that the landlord update the system.  Maintenancing it going forward is not going to last long.  Your system is actually about 20 years old, not 10.  R22 was phased out over 15 years ago.  We've been on R410A for over 10 years already.  I would definitely recommend that they use a contractor that sells systems with the R32.  We're finding in our area that R454B is becoming a huge problem.  People all across the nation are sucking down systems as soon as they buy them, storing the 454 and keeping it for future use and pumping 410 into it.  This is not only illegal but highly unsafe.  We do commercial installs and preventative maintenance, so this is something we deal with on the daily.  That R22 cannot be repaired or refilled.  It's against the law to do that now.  Once it goes down, you're SOL until it gets replaced.  Also, costs continue to rise, almost monthly, in our industry.  The sooner the landlord replaces it, the less they will pay to have it done.  Best of luck with this!

[MudFire_Dex]

Just got an email from a supplier in Canada that they are closing their US facing Etsy shop which accounted for 90% of their business while the regroup and try to find US distributorship. I have packages arriving from EU, Belgium, Romania, etc...for specific items for holiday classes - getting emails back from suppliers is heartbreaking in and of itself. 

[CareyJo]

I feel for all of you!  It's so sad that the company in CA has to close their US shop!  Such a loss.  I'm so lucky that we are passing the tariffs onto our clients because it's wrapped into the price we pay the supplier.  If we didn't know what prices were 6 years ago, we'd never know the difference.  Our biggest problem since 2020 was the delays in getting product.  We still have a tiny bit of that but since our suppliers order from other countries, we're waiting on them to receive.  

[doc_choc]

The tariff challenge... unfortunately it can affect even the smallest of companies. It is a very interconnected world and to be honest it should be and always will be. There is a principle called Le Chatelier's principle

'If the equilibrium of a system is disturbed by a change in one or more of the determining factors, the system tends to adjust itself to a new equilibrium by counteracting as far as possible the effect of the change.' In other words you can't force change without some kind of natural rebalancing to bring it back to where it was when in equilibrium. 

We have suspended delivery to the US, primarily because we use Royal Mail and they have temporarily suspended shipping to the US as the current US administration decided to scrap a customs tax rule that allowed low-value packages to enter duty-free. So anything under $800 was exempt under the de minimus rule, but alas no longer. We have a low price ticket item so it is not commercially viable to ship to the US territory without passing the additional cost burden on to our US customers. Sorry folks 😔 , it will sort itself out eventually!