Strategies for navigating tariffs
Navigating the turbulent waters of tariffs can be daunting for retailers, but they can benefit significantly from effective scenario planning and cost management strategies.
The key is to be proactive by anticipating various tariff impacts through robust planning and agile responses. Retailers must engage in comprehensive scenario planning to tackle potential tariff challenges head-on. To start, they should identify key uncertainties that could impact their business, like fluctuating tariff rates on product categories, changing trade agreements, and varying levels of consumer demand.
For example, tariffs might push companies to reconsider their supply chains, weighing the risks of disruptions against geopolitical and cost factors. Developing plausible scenarios from these uncertainties, such as unchanged tariffs or significant increases across various categories and countries, allows retailers to assess potential business impacts regarding costs, pricing strategies, sales volumes, profit margins, and competitive positioning.
Retailers that are focused on consumer staples might use techniques like strategic stockpiling to manage impacts, while those in the apparel industry could prioritize flexible and near-shore sourcing to adapt quickly and
effectively to tariff fluctuations and evolving consumer trends. Apparel retailers must also focus on building brand loyalty through hyper-personalization and an engaging customer experience to justify potential price increases. Adopting agile inventory management will also be critical in order to avoid high-tariff inventory bottlenecks.
Managing costs in a tariff-driven market requires both strategic planning and professional execution. For some retailers, optimizing supply chains manually by diversifying supplier bases or negotiating directly for better terms could be a good start. However, technology can elevate these strategies. For example, AI platforms can be used to analyze global trade data, predict supply chain risks, optimize logistics, and refine product designs for cost-effectiveness.
Adopting AI-powered tools for dynamic pricing, inventory management, and customer service automation can transform operations, making them more responsive to tariff-induced pressures. Reducing operational costs might involve manual periodic reviews of expenses and operations, whereas AI can provide real-time analytics to identify savings opportunities.
Technology is an accelerant for scenario planning and cost management. Leveraging AI and related technologies will help retailers speed up decision-making and improve precision. Being prepared, adaptable, and analytical is crucial to effectively navigate the evolving tariff situation.
Sudip Mazumder is senior VP, retail industry lead, North America at Publicis Sapient , a global digital consultancy.