The furniture retailer, which has three stores in California, is already struggling to compete with giants such as Amazon and Wayfair, which often undercut the company’s prices on everything from coat racks to bedroom furniture. Now Phillips says tariff-related expenses will put him at an even bigger disadvantage against his largest competitors.
"To be told suddenly that you’re going to be hit with a 10 percent surcharge on items that you planned for and ordered six months ago — well, that’s very hard to recover from,” said Phillips, who says he’s expecting price increases on roughly $80,000 worth of furniture that is already en route from China. “Today’s customers want the best price they can get, and if we’re not cheaper than Amazon, there’s no reason anybody is going to buy from us.”
Small businesses around the country say they are bracing for the latest round of tariffs, which could cut into already-thin profits and leave them with little recourse but to pass on additional costs to consumers beginning this holiday season. And while larger retailers such as Walmart, JC Penney and Amazon say they have already locked in low-priced inventory for the holidays, independent retailers tend to rely on third-party suppliers to import products for them, giving them little control over where their goods come from, or how much they cost. (Jeffrey P. Bezos, the founder of Amazon, also owns The Washington Post.)
“Larger retailers may be able to find alternative sources or be able to absorb a price increase without passing the cost on to their customers,” said David French, senior vice president of government relations for the National Retail Federation. "But the smaller you are, the more vulnerable you are to the impact.”
Analysts say the tariffs — which begin Monday at 10 percent and will rise to 25 percent on Jan. 1 — are likely to trickle down to retailers and consumers in the coming weeks and months, raising the prices of everyday household goods. While nearly 6,000 types of products, including seafood, suitcases and ski gloves, will be affected, industry leaders say big-ticket items such as consumer electronics, appliances and furniture will be among the hardest hit.
“A 25 percent bump at the wholesale level could end up being a 40 or 50 percent increase by the time something gets to the sales floor,” said Adam Rossi, owner of Adam Solar Rides, which sells electric bicycles, skateboards and hoverboards in Pittsburgh. “The American consumer just isn’t willing to pay that much more.”
Ken Kieran, owner of Union Farm Equipment in Union, Maine, says inventory costs have already risen substantially in recent months following a 25 percent tariff on steel imports. The price of a popular Chinese-made utility vehicle, for example, has risen $1,700 to $12,999 since March. Now he’s expecting another round of “across-the-board” increases, although he says it’s unclear just how much prices will rise in coming weeks.
“Everything I sell has steel in it, so prices have already gone up substantially,” he said. “Now you add in another tariff, and this could be catastrophic.”
The tariffs come as retailers prepare for an otherwise strong holiday season fueled by steady economic growth. By most measures, consumers are feeling good about their prospects — unemployment is down, the stock market is rising, and wages are inching up — which has helped boost sales at a number of big-name chains, including Walmart, Nordstrom and Home Depot. Holiday sales are expected to rise as much as 5.6 percent to a record $1.1 trillion, according to estimates from Deloitte.
“Retailers operate on razor-thin [profit] margins, so there is nothing they can do to mitigate these costs," said Hun Quach, vice president for international trade at the Retail Industry Leaders Association, an industry lobbying group. "A lot of these products, like Christmas lights, are already on ships and destined for our shores.”
Retailers around the country, including Best Buy, said they were in the process of figuring out exactly which of their products would be affected by the upcoming duties. Department store chain Macy’s is shifting its focus to in-house brands, where it has more control over where products are manufactured and how they are priced. Luggage maker Samsonite, meanwhile, has begun telling small-business owners such as Steven Smith to expect price increases in the coming weeks.
“We’re going to try — some way, somehow — to keep from raising prices,” said Smith, who owns Luggage & Leather Depot in Bethesda, Md. “But when these tariffs go up to 25 percent, we’re going to have to start charging more. If we don’t, we’ll be out of business.”
The Trump administration, however, continues to maintain that the escalating trade war with China will not affect American consumers.
“If you have a 10 percent tariff on another $200 billion, that’s $20 billion a year. That’s a tiny, tiny, tiny fraction of 1 percent total inflation in the U.S.,” Commerce Secretary Wilbur Ross told CNBC on Tuesday morning in response to a question about how the average American family might be affected. “Because it’s spread over thousands and thousands of products, nobody’s going to actually notice it at the end of the day.”
Vivian Sayward, who manufacturers athletic clothing in San Diego, says she is expecting prices to rise on a number of materials, including a polyester-Spandex-blend fabric she uses frequently. She said that she is looking into finding new suppliers that aren’t based in China but that the process could take months or years.
“This tariff was supposed to help American manufacturers, but truthfully, we may have to start manufacturing outside the U.S.," said Sayward, who founded Vivacity Sportswear six years ago. “I’m not quite sure, to be honest, how my business can survive long-term."