How tariffs could impact a home renovation
May 22, 2019 | 3:38 pm CDT
The Wall Street Journal met with Remodel Works Bath & Kitchen owner George Abi Habib to discuss how the newly-implemented Chinese tariffs will affect his remodeling company.
The new tariffs, which increased from 10 percent to 25 percent earlier this month, will affect more than $200 billion worth of Chinese exports. Many industries are affected - including wood.
Habib is nervous that his customers will not agree to paying a higher price.
"It takes a long time for customers to adjust to the new reality of what things cost. And in the meantime, we have a very large overhead and about 50 staff that we need to ensure have continual work."
He expects many homeowners will lean toward putting off a home remodel. And to attract new clients, he'll have to reduce his profit margin.
Photo by Harvard
He isn't the only one who is concerned about prices. We surveyed more than 200 of our readers to find out how they are being affected by the tariffs. A total of 85 percent of survey respondents expect to raise prices in response.
Specific responses ranged greatly. Some expect great losses of revenue, some are okay with rising costs of material, some expect no difference in their business, and some are more nuanced:
- The current 10% tariff added to our previous 3.3% has resulted in an 11% drop in sales during our usual best months. If the threatened 25% comes into play we will virtually have to consider shutting down and laying off all our employees.
- Not much, our imports are a very small portion of things we buy. We are hoping the tariffs are extended to impact products that unfairly compete against us.
- Your clients will only pay so much for product. Domestic sources are still too expensive. There is a slow down of opportunities.
We've also heard from several companies outside of the survey. Cabinet Joint, Sunco Cabinets, CNC Cabinetry, JSI, and others have sent letters to their customers indicating prices would increase or that they could. Trendway Corp., a Michigan employee-owned office furniture manufacturer, has announced its commitment to no price increases in the next 12 months.
Williams-Sonoma anticipated the tariffs, moving production away from China and hiring 500 U.S. workers.
At a recent Wood Products Manufacturers Association (WPMA) meeting in Nashville, wood product executives named tariffs as one of the main challenges they are facing, along with trucking problems and a labor shortage.
The Reshoring Initiative (RI), whose mission is to teach manufacturers that local production can reduce costs of ownership, is telling multinational companies hit by the tariffs to do the math correctly.
Most companies make sourcing decisions based solely on price, oftentimes resulting in a 20 to 30 percent miscalculation of actual offshoring costs. The firm offers a free online tool, the Total Cost of Ownership (TCO) Estimator, designed to help companies account for all relevant factors — overhead, balance sheet, risks, corporate strategy, and other external and internal business considerations — to determine the true total cost of ownership. TCO allows companies to better evaluate sourcing, identify alternatives and even make a case when selling against offshore competitors.
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