What Shippers Are Saying About Tarriffs - Part 2
This is a continuation of a previous article from April 21. Look for a part 3 in the coming days. As noted in the April 21 article, this is a compilation of quotes from shippers taken from earnings transcripts (Seeking Alpha) since the previous article. Note that links will take you to the individual company’s investor relations page.
I find it useful to understand the market to read what retailers are directly saying each quarter.
Automotive Parts
Genuine Parts, Q1 ending March 31. Reported April 22
Our trends in April have held consistent with March, and while market conditions remain soft, we've seen no appreciable downturn over the past two weeks, despite the tariff environment. Bert Nappier - Executive Vice President and Chief Financial Officer
About 70% of Genuine Parts Company’s purchases globally are either in the U.S. or Europe. So we articulated about 14% from China, which, you know, if you do all of the math, you know, our NAPA business is really the outsized exposure with China, Mexico, Canada, 20% to 15% to 5%, respectively. So we think the diversification of the business is an advantage. Having said that, it doesn't, the diversification adds to the complexity, because we've got trade partners around the world and while they might not be tariff impacted, it just adds to the complexity of how all of our geographies interact with their manufacturing base. Will Stengel - President and Chief Executive Officer
O’Reilly Automotive, Q1ending March 31. Reported April 24
It is still our expectation that we will be able to work with our supplier partners to actively negotiate the level of any tariff-driven cost pressure they pass through to us in order to mitigate the impact to our customers in a similar fashion to how our industry and Company has responded to previous tariff and other cost changes. Brent Kirby – President
Given the uncertainties surrounding current trade deliberations, we would not anticipate significant country of origin changes in our sourcing in the near term. However, we will continue to work closely with our supply-chain partners to evaluate the most optimal strategic path forward. Brent Kirby – President
Toys
Hasbro, Q1 ending March 31. Reported April 24
Our forecast assumes various scenarios for China tariffs ranging from 50% to the rate holding at 145% and 10% for the rest of world. This translates to an estimated $100 million to $300 million gross impact across the enterprise in 2025 before any mitigation. Gina Goetter - Chief Financial Officer and Chief Operating Officer
Our team has moved quickly to offset activating a range of levers including sourcing, optimization and diversification, coordination with retail partners on SKU assortment and promotion activity and readying targeted pricing actions. Gina Goetter - Chief Financial Officer and Chief Operating Officer
Basically we see the impacts to consumer spending on the toy category consistent with what happened with the 2008, 2009 recession. The toy category was down roughly mid-single-digits. Chris Cocks - Chief Executive Officer
Our conversations with the retailers are pretty fluid. For as many curve balls that are being thrown at us, the same kind of curve balls are being thrown to them and everyone is taking a slightly different approach with how they're managing their inventory and their order pattern. So we haven't seen on the big three, we're not seeing a ton of canceled orders and different thinking of how they're going to approach the holiday. But we are having very active discussions on how we're managing inventory as we move through say this Q2 period and then Q3, which is when you tend to see the resets start to happen ahead of the holiday season. But we are seeing some shifts on how we're thinking about the phasing throughout the year. Gina Goetter - Chief Financial Officer and Chief Operating Officer
In terms of our discussions with retailers, we're talking a lot about how can we keep prices as consistent as possible for consumers, especially for items that we think will be fantastic gifts that kids will be asking for and moms and dads and aunts and uncles will want to give. Chris Cocks - Chief Executive Officer
We are seeing a change from direct import to domestic and that will change the nature of the timing of when our orders will be fulfilled. I think Q2 is pretty dynamic, but I definitely think Q2 will be impacted on direct import. Chris Cocks - Chief Executive Officer
While our U.S. toy game business is roughly 55% of our revenue, 45% of it is okay with getting goods from China. So China is always going to be a manufacturing hub for us. As we think about our moves from the 50%, we said back in February we were on a path to move to under 40% by 2026. We are speeding that up. So we are expecting accelerating our efforts there. It will, we're targeting to be below that 40% by 2026. Chris Cocks - Chief Executive Officer
Mattel, Q1ending March 31. Reported on May 5
While tariffs did not affect our first quarter financial results, we are taking mitigating actions designed to fully offset the potential incremental cost impact of tariffs on future performance in three key areas. Ynon Kreiz - Chairman & CEO
Today, we source products from a combination of owned and operated factories and third-party suppliers in seven countries. China currently represents less than 40% of global production for our toys, compared to an industry average of 80%. In terms of U.S. imports for Mattel, China represents less than 20% of global production. Ynon Kreiz - Chairman & CEO
While China continues to be an important sourcing country for us on a global basis, we have been accelerating plans to further reduce reliance on China sourced products as part of our diversification strategy. As an example, in 2025, we will be relocating production of 500 toy SKUs from China to other sourcing locations. This is up from 280 SKUs, which we relocated in 2024, well before the recent U.S. tariffs were enacted. Ynon Kreiz - Chairman & CEO
In some cases, where a product is in high demand, we will dual source from two or more countries and can use this to our advantage. For example, UNO, which is produced in both China and India, is increasing flow from China towards international customers, and we are significantly ramping up volume in India to serve the U.S. market. Ynon Kreiz - Chairman & CEO
The combination of further diversifying our supply chain footprint and optimizing product sourcing and product mix is expected to reduce our U.S. imports from China to less than 15% of global production by 2026 and less than 10% by 2027, with additional contingency plans to accelerate that if required. Ynon Kreiz - Chairman & CEO
Q1 was not impacted by tariffs. We don't expect Q2 to be impacted. It's really in Q3 that we expect to see some tariff impact coming through as it works through the inventory of cycle. In terms of magnitude, the situation is very fluid, and a lot of uncertainty around the macroeconomic environment. Ynon Kreiz - Chairman & CEO
Home Goods
Floor & Décor, Q1 ending March 27. Reported May 1
Unlike in 2018 and 2019, we believe managing today's tariffs, uncertainty and complexity at scale and speed could be more challenging for some competitors in the hard surface flooring industry. To address this increased complexity, we have organized tariff Steering Committee. This committee will ensure we stay focused on executing our top priorities and remain agile in our operational plans as needed. Tom Taylor - Chief Executive Officer
Following the US announcement of a 90 day pause on all reciprocal tariffs, excluding China, we expedited purchase orders to maximize the likelihood they arrive before the end of the pause on July 9, 2025. This exemplifies how we are executing and will continue to execute at speed and scale. Second, we are actively negotiating and collaborating with our vendors to mitigate the higher incremental tariffs on the products we sell. Tom Taylor - Chief Executive Officer
we will continue to effectively implement our sourcing diversification strategies to find the highest quality products at the lowest possible price for both our homeowner and professional customers. Our scale and worldwide direct sourcing model, which involves over 240 vendors and 26 countries, provide us with flexibility and a competitive advantage, particularly compared to independent flooring retailers and distributors. Tom Taylor - Chief Executive Officer
It is likely that we'll need to raise prices to mitigate some of the incremental tariffs following our negotiations. If we do so, we'll continue to use the balanced portfolio approach to product pricing, ensuring a consistent pricing structure across different product categories, while managing our gross margin rate and profitability. Tom Taylor - Chief Executive Officer
Customers are asking for products produced in the United States, and we have already taken action to identify American made products in our stores. We are proud to report that the United States is now our largest country of manufacture, accounting for approximately 27% of the products we sold in fiscal 2024, up from approximately 20% in fiscal 2018. Tom Taylor - Chief Executive Officer
We have not taken prices yet beyond our normal course of business, where we're always moving price around up and down, depending on what's going on in the competitive marketplace. So, that will begin that as we get past the next couple of months. Bryan Langley - Executive Vice President & Chief Financial Officer
Kirklands, Q4, ending Feb 1. Reported May 1
While we have reduced our sourcing exposure to China from over 90% just a few years ago to approximately 70% in 2024, we are actively working through a number of strategies to help mitigate the impact the current tariff policy has on our business. Our merchandising and sourcing teams are actively engaged in cost negotiations, resourcing opportunities and strategic price increases. Assuming the current tariffs are tempered in the near-term and through the efforts we have underway with the support of our long-term vendor partners, I believe in our ability to navigate these headwinds. The current environment notwithstanding, we have a golden opportunity alongside our partners at Beyond to leverage these iconic brands to drive profitable growth. Amy Sullivan – Chief Executive Officer
Our teams are going through every PO at this moment and partnering with every vendor to discuss the best path whether holding goods, sharing costs of the tariff impact and then obviously, from there, what that means to how we think about our pricing and discount strategy. We have been holding goods from China for several days now, we had a significant review this week, and we are going to begin very surgical sort of metering of goods that we believe are seasonally relevant and key to our peak selling seasons as we get later in the year. But certainly, a fluid situation that we’re monitoring day by day. Amy Sullivan – Chief Executive Officer
Obviously, with our diversification and our sourcing strategy, we’re more generous with what we’re releasing from India, and Vietnam, and Cambodia and other countries that have a less significant impact from the latest tariff changes. But it is a fluid situation, and we are metering goods and holding goods to ensure that we can try to wait this out. Amy Sullivan – Chief Executive Officer
Stay tuned for more quotes on tariffs. I’ll probably send out a similar article on May 11.
Also, please remember that the first four articles are free. To access all articles, think about a paid subscription - It’s only $10 a month. 😉
Thanks!
- Cathy
For more thoughts and shares, be sure to follow me on Twitter, BlueSky and LinkedIn.
I wear a number of hats these days. I’m also helping out the Reverse Logistics Association as a research manager, and at JOC, I help out as a research analyst and write a weekly LinkedIn newsletter, Freight Forward, summarizing JOC & other published articles and providing an outlook for the week ahead. In addition, be sure to check out my website and be sure to sign up to receive more blog posts.