Trade wars with China and the European Union are stirring up anxiety in the retail, fashion, accessories and luxury markets as the implications and impact of tariffs remain unknown.
To help deal with that market uncertainty, retailers and brands can turn to “what if” costing platforms that take into account pricing and sourcing variables. Here, Ann Diamante, chief procurement officer at Bamboo Rose, discusses the impact of tariffs and how “what if” costing approaches can help.
WWD: What exactly is “what-if” costing?
Ann Diamante: What-if costing is an approach that models the impact of numerous variables of the landed costs of products by simulating potential scenarios. Retail platforms that include what-if costing tools make it easier for brands, suppliers, buyers, manufacturers and distributors to picture the international distribution of demand and increase transparency throughout the supply chain.
The most robust what-if costing tools take into consideration the import country’s Harmonized Tariff Schedule, or HTS, market-specific costs, product costs related to a component or special treatments, transport mode, shipment dates and freight/trade lane costs, and service provider fees related to transport, brokerage and financial institutions. Technology that enables a what-if costing approach can aggregate the potential costs and margins and compare results to original forecasts to ensure accuracy throughout the entire product life cycle.
WWD: How might these proposed tariffs affect retailers?
A.D.: As recently as this month, the [Trump] administration announced a proposed round of taxes on Chinese goods worth $200 billion. This 10 percent levy could come into effect as early as September of this year, a tight deadline for retailers to get their supply chain in gear. The constant and unpredictable changes to the Trump administration’s trade policies put retailers in the scary position of large, unplanned price fluctuations.
The more costs retailers incur because of these tariffs, the more likely it is those costs will be passed on to consumers. Retailers can no longer rely on planning alone to control cost and margins. Instead, retailers who are able to react quickly and effectively, and execute accordingly, will win the day.
WWD: How can a what-if costing approach mitigate trade and tariff concerns?
A.D.: Retailers must always be prepared to address unexpected risks associated with economic and political change. For example, the current U.S. administration has led the industry into uncharted territory with NAFTA renegotiations, trade anxiety with China and Europe and other international uncertainty. Among the risks that have potential to harm retailers in the near future are financial tensions with emerging economies, which could lead to disrupted global supply chains, lower productivity internationally and less affordable consumer goods. As the U.S. government debates policies and tariffs that will affect not just the U.S. retail community, but the global market, retailers need to prepare for whatever may come.
A what-if costing approach allows retailers to weigh the potential risks and forecast plans so that when an issue arises, they are fully informed and capable of working through it. Using cost simulation technology, retailers can calculate real, accurate landing cost estimates that take into account any possible contingency, allowing them to predict, control and manage their risks — all in one digital platform.
WWD: Why should retailers implement a what-if costing solution instead of another approach?
A.D.: Surprisingly, many retailers take a “do nothing” approach to calculating actual landed costs and risk mitigation. Some have a minimal approach, using manual tools like Microsoft Excel to manage complex simulations. Estimating the effect on shipments and margins this way, across hundreds of thousands of products, with multiple possible variables, is nearly impossible. Even when retailers review cost data on an annual basis, it isn’t practical as cost factors can change overnight.
Few retailers do constant, comprehensive what-if and any-market costing, giving them a competitive advantage over those who have yet to invest in the approach. With the ability to leverage current data to make more strategic business decisions, these retailers can improve margins and bring more suppliers on board, increasing the overall efficiency of their supply chains.
WWD: How can U.S. retailers address the loss of international interest in partnerships due to perceived volatility?
A.D.: Retailers around the world are experiencing the effects of global economic and political instability, from NAFTA to Brexit. Retailers based in the U.S. are not alone in trying to prove their value within the global community. What-if costing arms brands with real-time data that can be used to improve business decisions, allowing them to bring on board more trustworthy suppliers to create better quality products more efficiently than ever before. As long as retailers focus more on quality in the time of uncertainty, they will find a place in the global retail community.
Ann Diamante is chief product officer at Bamboo Rose. Her expertise lies in global sourcing, product lifecycle management, order management and retail supply chain.