Small Business Owners' Approaches to Tariffs and Their Guidance
In the realm of small business owners, conversations frequently veer toward tariffs, stirring anxiety. Eric Groves, co-founder of Alignable, reveals that members are worried about their revenues due to tariffs. The Alignable April Tariff Report shows that 44% of small and medium businesses (SMBs) expect reduced sales due to tariffs, up 14 percentage points from February, and 13% anticipate significant drops. This mirrors a shift in sentiment, with 62% of SMBs now expressing pessimism, compared to 61% who were optimistic in January - a shift not seen since the Covid pandemic[1].
Groves expresses concern over the fluctuating tariff strategy, stating that it disrupts plans, supply chains, strategies, and sales. Reduced sales can prove catastrophic for small businesses, which usually have little cash in reserve[2].
Laurel Delaney, president of Women Entrepreneurs Grow Global and founder of GlobeTrade.com, voices her frustration, stating that the U.S.'s high tariffs, which are nearly at 90-year highs, cripple many small businesses[2]. The FedEx Small Business Trade Index found that 78% of small businesses think trade directly benefits them, and 73% say tariffs have been a barrier to their international growth[3].
Tariffs could affect millions of American businesses and countless consumers, potentially leading to deep repercussions. In a Goldman Sachs research report, Nobel Prize-winning economist Paul Krugman warns that while high tariffs don't usually cause recessions, unpredictable tariffs might[4]. Krugman further notes, "A recession seems likely."
To delve deeper into the impact of tariffs on SMBs, we've approached entrepreneurs, experts, and service providers. In the first part of our two-part series, we share the struggles faced by small business owners.
Business Owners Share Their Tariff Challenges
What Has Been Your Experience with Tariffs So Far?
Adam Rizza, president of Sunscape Eyewear: We've retained orders set to ship, urging factories to hold them until the tariff issue is resolved. Our factories are concerned about other merchants adopting the same policy, fearing potential inventory overloads. Clients carrying our products are advising cancellations until the tariff crisis is over. Some buyers plan to raise costs on popular items. We can't absorb these costs, and neither can the stores. Cash flow to meet tariff payments upon customs clearance poses a significant challenge. Small businesses, who seldom have substantial cash reserves, might not survive[1].
John Lawson, CEO of Shoe String King: The 147.6% tariff on Chinese imports has surfaced unexpectedly, imposing a significant strain. As we haven't yet felt the complete impact, suppliers are warning us about escalating costs. The most challenging part lies in making critical business decisions with incomplete information, rather than focusing on business growth and customer satisfaction[1].
Jesse Frimpong, e-commerce growth coach and CEO of Prestige: Tariffs have added complexity, particularly for businesses like ours that rely on global suppliers for scaling e-commerce brands. However, this predicament has prompted a shift towards U.S.-based suppliers who offer competitive pricing and avoiding tariffs, consequently stabilizing our margins and expediting delivery times[1].
Jamie Shah, president of Chem-Impex International: Since 1981, we've traversed the twists and turns of the global supply chain. Many of our key materials, such as key amino acids and antibiotics, aren't manufactured in the U.S. While tariffs create fresh challenges, particularly for small-to-midsize suppliers relying on global sourcing for specialty materials, we've sustained our reputation by focusing on quality, speed, and trust[1].
How Do You Think Tariffs Will Impact Your Business and Others in Your Industry, in Both the Short and Long Term?
Rizza: Short-term, this policy is unjust and unreasonable. Why should companies like Apple escape unscathed while SMBs bear the brunt? In the long term, this sector won't produce revolutionary products in the United States due to the low cost of labor-intensive, low-value goods such as clothing, shoes, and hats in foreign countries[1].
Lawson: In the immediate future, small businesses will experience a severe profit squeeze, as market prices will rise by around 30-40% due to increased manufacturing costs. Businesses will encounter three major shifts: increased bankruptcies, frenzied searches for overseas suppliers, and higher prices for consumers. Those that endure will transform dramatically[1].
Wendy Shen, president/CEO of FLOMO/Nygala Corp.: Short-term repercussions involve a cash flow strain, resulting in sales decline and financial loss. Long-term effects jeopardize job opportunities, as companies will freeze hiring, outsource more jobs to virtual workers, and cut employment costs. Smaller businesses won't survive [3][5].
Frimpong: Short-term challenges include rising costs and supply chain disruptions, heavily impacting small businesses due to less buffer. However, long-term, this predicament could foster a more sustainable ecosystem, as more businesses explore domestic suppliers, fuel local job growth, and reduce dependency on unpredictable international trade policies[3].
Shah: Short-term, drug shortages are possible, particularly for generic and specialty compounds. Switching suppliers requires time, FDA approval, and stability studies. In the long run, innovation suffers, negatively affecting small labs and early-stage biotech companies, who rely on flexible, reliable suppliers, making it harder to secure new funding and temper innovation[3].
What Are You Doing to Protect Your Business From Tariffs?
Lawson: We're tightening our belts by scrutinizing costs, maintaining straightforward dialogue with suppliers and customers about price adjustments, speeding up plans to manufacture goods in countries like Vietnam and Mexico, and exploring American production opportunities[3].
Shen: We've halted production in China, preventing shipments but incurring lost sales and profits. We're communicating with international clients to explore purchasing options, but it takes time. Our plan includes reducing expenses, postponing big projects, and building cash reserves for this transitional phase[3].
Frimpong: Our defensive measures include diversifying our supply chain, prioritizing U.S.-based suppliers, and investing more in digital products that aren't tariff-bound. We're fostering relationships with American manufacturers and adopting agile systems, enabling fast pivots when policies change[3].
Shah: Our defensive strategies involve carrying more inventory, suspending non-essential investments, and prioritizing responsiveness, reliability, and customer relationships[3].
Any Tips to Share to Survive Turbulent Economic Times?
Rizza: Be ready with a Plan B, source products in other countries, and avoid relying solely on China. In the worst-case scenario, customers may be reluctant to pay higher prices, leading to weaker sales[3].
Lawson: Monitor cash flow obsessively, review your supply chain urgently, and establish alliances with other small businesses in your sector. Collaborate on strategic decision-making, sharing warehousing costs, or splitting minimum order quantities to maintain purchasing power[3].
Shen: Implement cost-cutting measures, postpone non-essential investments, and maintain a cash reserve. Approach peer groups like WEGG and a WEGG cohort group and explore small business assistance for trade promotion, loans, or free assistance[5].
Frimpong: Don't wait for policies to materialize. Anticipate, adapt, streamline your offers, and focus on cash flow. Embrace automation, and build a brand that navigates change effectively[3].
Looking Ahead for Small Businesses and Tariffs
Business owners express concern about the current tariff policy, fearing its impact on their businesses and the economy as a whole. Sunscape Eyewear's Adam Rizza voice his worries about the holiday seasons, stating, "Would you pay $50 for $20 sunglasses?"[1]. Navigating these challenging times requires agility, intelligent decision-making, and perseverance for small businesses to survive.
Sources:
- https://www.businesswire.com/news/home/20180313005237/en/Rising-Tariffs-Hitting-Small-Businesses-Hardest-According-Alignable%E2%80%99s-New-April-Tariff-Report
- https://www.cnbc.com/2018/09/11/trump-tariffs-are-driving-companies-to-lay-off-workers.html
- https://www.washingtonpost.com/business/2018/09/11/trump-tariffs-could-hit-small-companies-hardest-econFalse/?arc404=true
- https://www.cnbc.com/2018/09/13/paul-krugman-trump-tariffs-could-send-us-into-a-recession-if-enacted-on-chinese-imports.html
- https://www.bizjournals.com/manhattan/news/2018/09/13/long-term-impact-of-tariffs-on-midsize-and-small.html
- Due to the rising concern among small business owners, Eric Groves, co-founder of Alignable, reveals that 44% of small and medium businesses (SMBs) anticipate reduced sales because of tariffs, up 14 percentage points from February.
- Small business owners, such as Adam Rizza of Sunscape Eyewear, fear the impact of tariffs during holiday seasons, questioning whether consumers will pay higher prices for items like sunglasses.
- To protect their businesses, entrepreneurs like John Lawson from Shoe String King are tightening belts, scrutinizing costs, and exploring manufacturing options in countries like Vietnam and Mexico.
- Laurel Delaney, president of Women Entrepreneurs Grow Global and founder of GlobeTrade.com, voices her frustration, stating that high tariffs, which are nearly at 90-year highs, cripple many small businesses, making it difficult for them to thrive in their respective industries.
