Ahead of the holiday season, when most retailers typically ramp up hiring, many have already gone on a freeze as they look to cut costs ahead of approaching tariffs.
Investment amid uncertainty is almost always a no-go, but more than holding back on new spending, retailers looking to mitigate the impact that the threatened 10 percent tariff on $300 billion worth of remaining imports from China that’s supposed to take effect starting Sept. 1, are already working to cut back on current spend to maintain margins.
And it’s because most think President Trump’s latest tariff threat has teeth.
“We all feel more than we have over the last six to 12 months that this last round of tariffs is going to happen on Sept. 1,” Jay Foreman, CEO of Basic Fun! Toys said speaking on a media call hosted by Tariffs Hurt the Heartland last week.
If they come to fruition, the tariffs—which have already raised the cost of goods more than the overall rate of inflation—will come with a host of follow-on effects beyond just raising prices for product, like the “potential for significant job loss in the U.S. economy,” said David French, SVP of government relations for the National Retail Federation (NRF).
Already, the job cuts have begun.
“When the administration in July came out and said that they were not going to enact List 4, we posted ads for three new positions, and since the administration has reversed course, we have pulled those ads for those new positions,” said Win Cramer, CEO of consumer electronics company JLab Audio. “We’re not reducing our workforce yet…however, we are no longer in hiring mode.”
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Likewise, when the administration came out and offered up a tax break for businesses, companies planned their costs and pricing accordingly. And now the tariffs could offset the bulk of any breaks the tax cut delivered.
“This is a new occurrence for our business model,” Foreman said. “Our borrowing base is based on us hitting numbers…and if those numbers change, we have a higher cost.”
As with any company, lowering overhead is the first aim when trying to protect margins from falling, and the workforce often gets targeted first.
“You cost us profits, you lower our sales, you reduce demand for our products, there’s a consequence for that and the consequence has to be lower wages or lower bonuses…unless you find another way to offset those costs,” Foreman said. “We will have to institute layoffs if the tariff is imposed.”
For now, companies like JOANN Stores, are holding out hope that “cooler heads will prevail” in the coming talks between the U.S. and China.
“We don’t want to do things that are rash,” Wade Miquelon, CEO of JoAnn Stores, said. “We don’t want to lose good people. We don’t want to close stores.”
What’s necessary may end up overpowering wants, however, as there’s so far been little indication of cooled heads.
On Saturday, President Trump tweeted, “China wants to make a deal so badly. Thousands of companies are leaving because of the Tariffs, they must stem the flow. At the same time China may be hoping for a Democrat to win so they could continue the great ripoff of America, & the theft of hundreds of Billions of $’s!”
Since the latest tariff threat announced on Aug. 1, China has devalued its currency, the U.S. has labeled it a currency manipulator, and neither side has seemed to let up in the fight.
“The heat is gradually being turned up and after Sept. 1 we may see significant changes in the temperature,” French said. “If this thing goes down the path it’s going down, you’re going to see less hiring, more layoffs and some of these companies will have to fold up.”