Brands across the US are facing significant challenges from new and impending tariffs. Promised US-imposed tariffs, coupled with pre-emptive tariffs from trading partners, are reshaping supply chains and driving up costs. A recent example is Mexico’s decision to increase tariffs on finished textile goods and restrict the temporary import of goods, which has disrupted US brands that relied on Mexican warehouses for cost-effective fulfillment, forcing them to scramble for new solutions.
Understanding the Impact of Tariffs on Retail
Tariffs disrupt the retail industry by increasing costs, complicating supply chains, and creating pricing challenges. When countries like Mexico impose sudden tariffs, retailers face higher landed costs, requiring them to adapt their sourcing and distribution strategies on the fly. As mentioned earlier, US brands relying on Mexican warehouses were blindsided by new regulations, leading to contract cancellations and the urgent need to find alternate fulfillment centers. These new (and potential future) tariffs highlight the need for agility and data-driven strategies to navigate this landscape.
Leveraging Toolio for Tariff Resilience
Dynamic Cost Modeling
Toolio provides dynamic cost modeling tools to simulate the impact of absorbing tariff costs on margins and pricing. By leveraging these insights, brands can make informed decisions about which products can absorb costs while maintaining profitability.
Optimizing / Diversifying Supplier Networks
Toolio’s centralized platform enables brands to analyze supplier performance, compare costs across multiple regions, and consolidate supplier data—including cost breakdowns and historical performance—into a single source of truth. With these data-driven insights, brands can identify alternative suppliers in tariff-free regions, quickly adjust sourcing strategies to mitigate cost increases, negotiate better terms, share tariff costs, or reallocate production to more cost-effective suppliers.
Advanced Demand Forecasting
Toolio’s AI-powered demand forecasting ensures inventory planning aligns with shifting costs and market trends by predicting consumer demand with precision. Optimize inventory distribution, adapt sourcing strategies, and adjust assortment plans to prioritize higher-margin products that can absorb tariff costs. This ensures inventory aligns with actual demand, reducing excess stock and mitigating the financial impact of tariffs.
Strategies for Mitigating Tariff Risks with Toolio
Scenario Planning and Reconciliation
Toolio enables planners to simulate various tariff scenarios, assess their financial and operational impacts, and reconcile these scenarios with goals. Align planning across teams with our centralized platform for a unified approach to managing tariff-related challenges.
- Creating Tariff Scenarios: Model worst-case, best-case, and likely tariff scenarios, forecasting their impact on costs, margins, and sourcing decisions. Collaborate across teams to allow financial, merchandise, and operational plans to remain cohesive. For example, brands could assess the impact of a 25% tariff increase on a key category, identifying alternative sourcing options, and aligning these changes with financial targets.
- Open-to-Buy Adjustments: It’s common for businesses to reduce the amount of receipts they want to bring in because they want to reduce the increased costs. However, this sometimes increases the risk of insufficient units to cover their anticipated sales. Toolio helps customers avoid this.
Test-and-React Agility
Toolio empowers brands to stay agile in the face of tariffs by enabling quick pivots in inventory and sourcing strategies. With real-time data and advanced analytics, brands can test small-scale changes, assess their impact, and react quickly to optimize.
- Test New Sourcing Strategies: Run small-scale tests with alternative suppliers or tariff-free regions to evaluate cost-effectiveness and operational feasibility. Analyze performance metrics in real-time to scale successful strategies. Test sourcing with a popular product from a new, tariff-exempt supplier. Monitor cost savings and delivery timelines before scaling up.
- Reacting to Demand Shifts: Identify changes in customer behavior caused by tariff-related price increases. Adjust inventory allocation or pricing strategies to meet evolving consumer demand without sacrificing margins. Surface tariff-affected products with decreased demand and reallocate inventory to regions where demand remains strong or offer promotions to boost sell-through.
Proactive Inventory Allocation
Toolio helps brands make data-driven allocation decisions to navigate tariff-related disruptions in supply chains, costs, and demand. With real-time insights, retailers can adjust inventory distribution, optimize sell-through, and protect margins.
- Reallocating Inventory to Match Demand Shifts: Tariffs may increase prices, leading to regional demand fluctuations. Toolio helps identify areas where customers remain willing to absorb price increases, ensuring inventory is sent to high-margin regions rather than price-sensitive markets.
- Maintaining Base Inventory in Key Locations: Tariff-driven supply chain delays may create stockout risks. Toolio’s allocation tools ensure that critical stores and fulfillment centers maintain minimum presentation quantities, helping to avoid lost sales due to delayed shipments.
- Smart Markdown Strategies for Tariff-Impacted Products: If higher tariffs reduce demand for specific products, Toolio helps retailers identify the best markdown timing and depth to move inventory strategically while protecting margins.
Building Resilience Amid Tariffs
Navigating tariffs is a complex challenge that requires proactive planning and adaptability. By leveraging tools like Toolio, brands can build resilience, minimize risks, and protect profitability amidst a disruptive supply chain environment. Toolio empowers retailers to make data-driven decisions, optimize inventory, and stay agile in the face of tariffs.See for yourself how Toolio’s retail planning platform can transform your approach to tariffs and help your business thrive. Speak to an expert today.
