With the swift taps of his thumbs, President Donald Trump has sent the world of importing from China into a frenzy. Tariffs spiking up from 10% to 25% on the $200B amount levied in 2018 – Amazon Sellers are starting to feel the repercussions as they rush to crunch numbers to determine their costs of goods sold (COGS).
The biggest question being asked is “What now..?” and with good reason.
Where do Amazon Sellers fall when the competition is already so fierce and the fight for a profitable margin is always on the front-lines? Is your competition going to eat some of these additional tariffs to keep the competitive edge? What are suppliers doing to ensure the demand doesn’t drop too drastically? What’s Noviland doing?
Let’s dive into the tariffs, what they mean, and how they’re being handled all around.
How does this affect Amazon Sellers?
Amazon Sellers have been sourcing from China for years. Bringing their ideas to fruition with competitive pricing and selling them on this beast we like to call the Amazon Marketplace. Allowing people the opportunity to build a business they can call their own with private label products and either have a side hustle, or a full-blown career as an eCommerce Seller.
Sellers are feeling the heat and are only left with a few options:
- Finding a better factory with better pricing
- Finding a new country to source from
- Completely stop selling Chinese imported goods
- Raising their prices to cover the additional costs
- Absorb the costs and sell with a much lower margin
- Jump straight to tips
Finding a new supplier for an already existing listing is difficult enough within China – throw in that it has to be from a different country and you’re running into major roadblocks. Countries like Vietnam & India are simply not built to take on these new demands; starting with not having enough raw materials to go around.
Sellers spend weeks, sometimes months, perfecting their items through samples, trial orders, and close communication with their Chinese suppliers. To throw it all away is devastating, especially to a new business owner.
Stopping sales completely means throwing away all of the effort the Sellers spent in marketing – losing them all of the time invested into Facebook Ads, Instagram Ads, PPC, Listing Optimization, and so much more. Not to mention put a strain on their relationships with their suppliers.
These two are simply not options for companies that have been building their brands out for years, and especially not for those that just started out a few months ago.
That leaves 2 options; Raise the selling price, or absorb the cost. Both of which have a huge impact on both sales and cash flow.
Raise the price… or take the hit?
This is the ultimate decision every Amazon Seller that wants to continue sourcing from China has to make – and by no means is it an easy one.
Raising the price means they’re at risk to lose their competitive pricing edge on already difficult margins to work with for those price sensitive products.
During the initial announcement of the tariffs in 2018 that would affect Amazon Sellers, we saw many of our users ordering larger volume orders in order to avoid the tariffs, however this put a strain on their cash flow which is vital to advancing their Amazon businesses.
With the Amazon Marketplace bringing on new Sellers every single day, the competition grows fiercer by the day. Taking the cost of the additional tariffs is simply not an option for Sellers that are already working with low margins and relying on volume sales.
One of the only ways to do that effectively is to forecast properly and many are using services like SoStocked to accurately forecast and order their inventory.
They’ll have to find methods of saving, whether it’s reducing marketing budgets, finding creative ways to reduce their product size and reduce their Amazon fees, etc.
Necessity is the mother of invention and Noviland users are already finding creative ways to reduce their product and volumetric order size – whether it’s through making their product more of a ready to assemble item, or shipping the products in a master pack and the packaging flat-packed, then using services like 3PL Guys to store & assemble them stateside.
What are other companies doing?
Ordering has not slowed down by any means through the Noviland platform. Other companies are re-assessing their suppliers of years and finding ways to reduce their costs as well. With the tariff spikes being across the board, diversifying suppliers is a must and often times that means finding new factories even when you didn’t think you’d need to.
Reassessing suppliers and products is a must; whether it’s making minor tweaks to the product design, finding alternative factories with better pricing both in China as well as other countries, or removing some of the features to products that help bring down the costs.
Conversely, you may want to consider making a superior packaging to make the perceived value of the product higher, making it easier to justify a price increase.
Many of these companies have stocked up their inventory, expanding warehouse space and ordering double, even triple, their regular order size in attempts to outlast the small-to-medium sized businesses that are struggling between raising their prices or taking the hit on their margins.
You’re able to easily do these things by working with a trusted sourcing company. If you’re not sure how they operate you can check out What to Expect When Working with an Online Platform.
What are the factories in China doing?
To put it simply – not much. The factories in China are looking to industry leaders to guide them in their decisions. Looking into markets aside from the US is difficult when the US has the largest consumer market on the planet.
Factories know demand is going to slow down, but they have no intention of slowing down supply. Some moving to other countries to open new factories which doesn’t help meet any immediate needs, although most don’t have the capital to do so.
Others are depending on the consumer consumption in the US to stay steady enough to last through this US-China Trade War.
The Chinese factories are already operating at incredibly thin margins which leaves them little to no option to reduce the price they set on their products. When pressed for price reductions, it’s common for the factories to reduce their quality levels because it’s the only way to meet their clients requirements.
What’s Noviland doing?
Noviland is working closely with its network of thousands of factories in China to educate them about how to respond to the US-China Trade War. Educating them to push for lower MOQs by having them reconsider their plant layout and their general business model.
Chinese factories are very slow to adopt this eCommerce, and specifically the Amazon Seller, model of having to accept lower MOQs in order to win more business. Through talks at conferences, one-on-one talks with factory owners, and other marketing channels – Noviland aims to help Chinese factories in our network understand the value in compromise.
Factories see Noviland as a unique selling channel which allows them to sell directly to the end buyers without having to go through marketplaces like Alibaba, which you’d find traditional trade agents on. Noviland acts as an extension to any businesses sourcing and purchasing abilities – helping find the happy medium between the two.
Noviland’s ultimate goal is to help SMBs stay streamlined in their sourcing while keeping their product costs low. Through a combination of cloud technology and supply chain experts, Noviland aims to take on the challenge presented by this administration so you don’t have to.
Tips to help get through the US-China Trade War
Here are some tips and insights to consider now that the tariffs have increased and everyone is feeling the heat:
Reconsider Your Margins:
To ensure all of your marketing and branding efforts don’t go to waste, consider lowering your margins significantly and even taking a loss to maintain your company’s image.
Sell in Non-U.S. Markets:
If you’ve never considered selling in a market outside of the US, this might be a good time to do so. You can use YLT Translations to ease the process of breaking into the EU. Make sure you read up on VAT compliance as well and reach out to Simply VAT with any questions about it.
Reevaluate your Long-Term Pricing Strategy:
The factory may not be able to do much about the unit price at your current quantities, but they may be able to at higher quantities. Find out how much you need the product cost to go down to minimize the impact of these new tariffs and ask your supplier how much you have to buy to achieve this.
It’s much easier to handle these communications with suppliers when you have boots on the ground in China. This is why Noviland is committed to helping all companies get the best price from Chinese factories to minimize the impact of these tariffs. With a network of thousands of trusted factories, Noviland will help you source and purchase by assigning you an entire team to every single project you have to get you the best price at the lowest MOQ.
Francois Jaffres is the COO of Noviland.com, a rapidly growing sourcing & purchasing solution making sourcing from overseas factories simpler. He has worked with over 500 businesses to source from China, has a background in Industrial Engineering, and is very active in the Amazon Facebook Groups. He currently splits time between Campbell, CA and Pittsburgh, PA.