I went browsing at Grizzly and noticed many of the prices now featured an added "tariff fee" of about 20%. Maybe it has been this way for while and I just noticed? When I searched online, I found out that even people who already had orders in place were informed that a 20% fee would be added. Just out of curiosity, what is the actual amount of the tariff? Are they already charging it at the border? It must be more difficult to sell Grizzly tools after an instant 20% markup... I read that Harbor Freight is following suit (I don't know if that's true or not, but have little doubt that higher costs lead to higher prices..).
I can't speak to the exact amount of the tariffs, but...
First, I wouldn't be surprised if there is some amount of price gouging by companies that raise their prices on products that are already on the shelf and not impacted by the tariffs. Just like when gas prices go up at the first mention of a hurricane, even on the gas that is already in the local gas station's tanks.
I heard an interview of the owner of a company that makes specialty waterproof lighting (scuba lights, lights for TV stations so they can film the reporter out in the storm, etc.) He buys his parts from China and assembles the lights in the US. It's the parts that will impacted by the tariffs. Meanwhile, some of his competitors also buy their parts from China, but they have the equipment assembled in "most favored nation" countries. No tariffs on the Chinese parts going into those countries and no tariffs on the fully assembled product coming into the US. The owner said that he will not be able to compete with those companies unless he moves his assembly operations overseas.
The interview did not include the question "How many American jobs will be lost?"
My concern is that even if the tariff scheme is a negotiating tactic being employed just to bring the Chinese to the table, companies such as this lighting company have to do what they have to do to stay in business *today*. They can't wait for the ploy to play out. Once they set the wheels in motion to send the jobs overseas, it probably won't get undone even if the tariffs are removed.
There are also companies that are adding jobs because of the tariffs. We have to wait it out, we have no choice. We've been on an un-level playing field with China for too long and something needed to be done about it. These tariffs are a step to turning the tide. China doesn't want to lose its biggest market. Is it a Chess match? Yes. But at least we're finally at table.
It is a long standing way of inventory cost control. Some businesses change the value of all of their inventory when cost changes go into effect vs. selling on hand inventory at the old cost and changing prices on the replacement inventory. Each method has it's advantages and disadvantages.
The retailer is simply charging replacement cost on the inventory he alread y has. When the retailer sells the current inventory that does not have th e tariff, he has to replace it in the future with inventory that will have the tariff. To do that and maintain profit margin, he has to sell the unta riff inventory at the tariff price.
Think about real estate. You buy a house for $100,000. You decide you wan t a new house, in the same neighborhood. But the new houses sell for $200,
000. Do you sell your old house at $100,000, because that is what you paid for it? Or do you sell it for $200,000 to allow you to buy a replacement.
On Tuesday, September 25, 2018 at 3:40:57 PM UTC-4, snipped-for-privacy@yahoo.com wr ote:
ady has. When the retailer sells the current inventory that does not have the tariff, he has to replace it in the future with inventory that will hav e the tariff. To do that and maintain profit margin, he has to sell the un tariff inventory at the tariff price.
If it's only about replacement cost, then you're saying that he'll lower th e price on his last "tariffed inventory" as soon as he hears that his *next* shipment won't be tariffed.
If he doesn't then he sold at least one "inventory cycle" at an elevated pr ice.
ant a new house, in the same neighborhood. But the new houses sell for $20
0,000. Do you sell your old house at $100,000, because that is what you pa id for it? Or do you sell it for $200,000 to allow you to buy a replacemen t.
I sell my house for the highest price I can get regardless of what the next house is going to cost me. Just because the new houses are selling for $200 K doesn't mean my old house will sell for $200K. Could be more, could be less . Bad analogy.
Not the best example. Yours makes sense in the sense that when you sell a home to either upsize or downsize you want to minimize your out of pocket or increase the money you take off the table at sale.
If Grizzly only wanted to maintain their status quo they would sell existing stock at cost plus markup % and leave the tariff out of it.
Let's say that they have a 9% gross margin percent over cost of goods sold.
A machine in stock BEFORE tariff cost them $100 and they sold it at $110. That's a 10% markup and a gross margin percent of 9% or $10 gross margin.
Now if they take existing stock and raise its cost by the amount of the tariff, let's say the tariff is $20. Now their 10% markup is $12.00 and they have to sell it for $132 to maintain their 9% gross margin which now becomes $12 gross margin dollars.
If they sell one unit from stock without the tariff added in and one additional ordered in and paying the tariff, WITH the price bump as above, they will have paid a total of $220 and received $22 gross margin dollars.
If they bump the price of the in stock, upon which they have not paid the tariff, but are pricing it as if they had, they end up with $24.00 gross margin dollars or the same gross margin of 9%.
On the face of it (figures lie and liars figure) the profit margin has not changed but there is an extra two dollars coming out of the consumers pocket on those two items and going right into the Grizzly's pocket.
Simple example, small amounts. Who cares? Well, increase the cost, markup % and sales volume and you or I would be quite happy to accept it as a bonus. As additional out of pocket expense for us? Not so much.
On the other hand, most of these importers work on a Just-in-Time delivery model, so there won't generally be much stock to which the pre-tariff cost structure applies.
DerbyDad03 wrote: ...Meanwhile, some of his competitors also buy their parts
Interesting to note, where there is a "loophole" with a financial incentive to find it, people find it! And as you noted, the consequences can be huge...
Those same consumers who's confidence is at a near record high? Like I said, it had to be done. The Chinese were and still are playing the game at a huge (yuuuuge) unfair advantage. But American consumers don't care as long as they can buy their $7.99 lawn chairs and other crap that would be impossible to manufacture that cheap without near-slave wages absolutely no environmental regulations. In the big picture, you see European nations starting to drop their tariffs on our exports. If it's allowed to be played out, it will be much, much better for our economy and workers in the long run.
Unless we are experiencing a feedback loop where bull markets feed consumer confidence which keeps the bull running which increases consumer confidence which keeps the bull running, etc. etc.
Shiller's "Irrational Exuberance" phrase comes to mind. Former Fed Chair Greenspan used it in a speech to describe the dot com bubble in 1996, a few years before the bubble burst.
Earnings spiked with the tax cuts early this year, so P/E's aren't out of line - yet. Let's hope this tariff game plays out before the market is so overvalued that it all comes crashing down.
It must be price gouging. Fed Chair Powell just said that they are not seeing any increases in consumer prices due to the tariffs. Maybe you should email a Grizzly product link to him. ;-)
I wasn't aware that woodworking machinery was a component of the CPI.
'The CPI measures costs in these areas, according to the BLS: Food and Beverages (breakfast cereal, milk, coffee, chicken, wine, full service meals, snacks) Housing (rent of primary residence, owners' equivalent rent, fuel oil, bedroom furniture) Clothes (men's shirts and sweaters, women's dresses, jewelry)'
'Sound extreme? Consider this, then: The largest component of CPI is gathered by asking homeowners how much rent they'd charge if they were to rent their homes today.'
Drumpf has carefully selected his tariff targets to affect items that are not part of the CPI.
Note that the tariffs have already cost Ford over a billion dollars and Ford buys most of its metals from US producers. You can be sure that will show up in new car prices (and potentially reduced dividends to shareholders); neither of which show up in the CPI.
HomeOwnersHub website is not affiliated with any of the manufacturers or service providers discussed here.
All logos and trade names are the property of their respective owners.