A 10 percent tariff pill is too tough for many Americans to swallow.
According to a survey conduced by global consulting firm AlixPartners, just 40 percent of Americans will still purchase holiday products whose prices have seen a tariff-induced hike of 10 percent or more.
Fielded between Aug. 27-29, just days before a 15 percent tariff was set to take effect for a portion of Chinese imports on the final list of items not previously taxed, the survey polled 1,005 U.S. consumers, ages 18 and older, across major regions, demographics and income levels.
The survey also found that just 30 percent of consumers plan to maintain or boost their holiday spending, down 6 percentage points year over year. Twenty one percent of those planning to reduce seasonal spending indicated an unwillingness to purchase if tariffs raise prices by more than 10 percent.
So what does this mean for retailers?
Merchants must find a way to offset tariff costs rather than saddling consumers with sticker shock, Roshan Varma, a director in the consultancy’s retail practice, said in an interview. “Target has said publicly that it wants suppliers to eat the costs. They have the power to do so,” he said.
However, not every retailer will be so fortunate. “Those with less power over suppliers will have to eat the [increase] themselves or pass along the costs,” he said.
With an extra 15 percent in tariffs applied earlier this month on items such as smartwatches, drones, televisions and headphones, plus additional tariffs starting Dec. 15 for popular holiday gifts including smartphones and videogame consoles, Varma warns that “retailers will need to focus on flawless execution throughout the remainder of the year.”
The survey results also pinpointed a dramatic drop-off in consumer sentiment regarding future outlook, he said, in contrast to other studies revealing remarkable optimism about economic health.
Less than half (41 percent) of respondents claimed their financial health is better now than it was 12 months ago, down from 47 percent in last year’s study. And perhaps more important, just 37 percent said they think the economy will be stronger 12 months from now, an 8 percent decline from 2108’s findings.
“This [report] had one of the lowest economic sentiments in all the years that we’ve done the survey,” Varma added.
Varma attributed this year’s dip in economic optimism to a combination of market volatility, a multitude of concerning storylines dominating the news cycle, and more people now clued into politics and global goings-on than in years past.