If you are a furniture retailer and have not yet had discussions with or received letters from your vendors about price increases, consider yourself lucky. That is likely going to change.
The recent announcement of a 20% tariff rate on imports from Vietnam, which follows closely on the heels of a tariff agreement on imports from China brings the first measure of clarity to the sourcing situation since the initial wave of tariffs were announced in early April.
While history shows the tariff situation can change quickly and dramatically, the appearance of stability with the furniture industry’s two largest trading partners should allow the companies sourcing there to begin establishing a measure of cost predictability and, in turn, pricing forecast-ability.
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This likelihood was strengthened last week with the administration’s announcement that it had sent letters to other key trading partners, with new tariff rates that are slated to go into effect Aug. 1. As it relates to key furniture source countries, those rates appear unlikely to kick off major sourcing shifts.
For example, Cambodia, which had recently seen increased attention as a potential alternative to China or Vietnam, appears likely to get a 36% tariff rate, down significantly from its April rate of 49%. However, that rate is still high enough that it’s unlikely to attract business away from Vietnam. And the country’s limited manufacturing base and infrastructure suggest its ability to fill China’s sourcing shoes is quite limited in the short term.
The same seems true of Malaysia, whose Aug. 1 rate of 25% is only marginally higher than April’s 24%. The wild card for now appears to be India, whose Aug. 1 rate of 27% could still change based on ongoing negotiations.
The through-line in all of this is that furniture sourced in almost any one of the country’s major trading partners is likely to carry tariff rates around or above 20%. For context, that’s the rate imposed on China in 2019 that triggered a major resourcing effort that ultimately resulted in Vietnam surpassing China as the No. 1 exporter of furniture to the U.S. As a result, there is a strong likelihood, near-certainty that price increases of varying degrees will soon be a fact of life.
The natural reaction for retailers will be to push back. And we’ve already heard reports of some majors flat out refusing price increases. There are a couple of reasons why that might not be the best long-term response.
First, manufacturers are already under tremendous financial pressure with reports of vendors closing their doors popping up with increasing frequency. Major consolidation in the manufacturing community could swing the supply-demand equation and not in retailers’ favor.
Second, the most common means of holding or reducing price is to use lower cost materials. Given the downward pressure on prices in the past four years, the prospect of further compromises in construction or materials will at some point raise quality concerns, not a good thing for retailers looking to retain existing customers while desperately attracting new ones.
Price increases are coming. How we as an industry deal with them will go a long way to determining the health of the industry in the years to come.
