Small U.S. retailers face holiday supply chaos due to Trump tariffs

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By Deborah Mary Sophia and Savyata Mishra

(Reuters) -For Matt Hassett, founder of New York-based sleep wellness brand Loftie, the year-end holiday rush has always kept him on his toes.

But this time, it has turned chaotic as import tariffs on China, from where Loftie sources its sunrise lamps and phone-free alarm clocks, disrupted supply chain.

“It’s been very difficult to prepare. We have sold down to extremely low stock levels – we probably have about 10% of the inventory we need,” he said earlier this week.

U.S. President Donald Trump’s tariff flip-flop on goods from China, a lifeline for U.S. retailers, have forced small firms such as Loftie to choose between paying steep levies or finding new suppliers at even higher cost.

DELAYED ORDERS, LOW ON STOCK

When Trump threatened tariffs as high as 180% on Chinese imports in mid-April, Hassett explored shifting production to Thailand, where duties were lower.

But when the rates on China was later cut to 20%, the alternative factories with 20% higher production costs proved to be costlier than the tariffs.

In the end, Hassett stuck with his Chinese manufacturer. But the scramble delayed orders, leaving him dangerously short of stock ahead of the year’s busiest shopping season.

November and December typically account for a third of U.S. retailers’ annual profits.

Other small business owners are also struggling to balance inventory and changes to supplies, risking low stocks in warehouses and shelves during Black Friday.

Brooklyn-based Lo & Sons, which sells travel bags and accessories online, scouted up to eight factories between April and June in multiple countries, including India and Cambodia, before returning to its long-time supplier in China.

“On top of costing us a ton in tariff payments, the uncertainty prevented us from placing purchase orders,” CEO and co-founder Derek Lo said. “Now we’re sitting on lower-than-ideal inventory.”

BIG RETAILERS EASILY ABSORB SHOCKS

Big-box retailers such as Walmart and Costco can soak in the supply jitters by leveraging scale more easily than smaller firms.

Operating margins for small retailers with total assets less than $50 million have plunged to negative 20.7%, according to business analytics provider RapidRatings, leaving 36% of them at a high risk of bankruptcy compared to 12% of large retailers.

“For the first time since the pandemic, average profit has dipped into negative territory… disproportionately impacting smaller companies that lack the scale and resources to absorb these pressures,” said James Gellert, executive chairman of RapidRatings.

CUTTING JOBS, DROPPING PRODUCTS

Uncertainty from tariffs resulted in some businesses placing big holiday orders to get ahead of duties, but they risk getting stuck with unsold items due to an increasingly fragile consumer confidence.

More than a dozen small U.S. retailers that Reuters spoke to also flagged significant cost increases, resulting in some of them cutting jobs or trimming offerings to save cash.

The ripple effect of supply-chain disruptions can be seen across categories.

Haus of Brilliance, a New York jewelry brand, shifted some production to Thailand and the U.S. to offset around 50% tariffs on India, its main hub.

The company has just completed its first production run in Thailand, which founder and CEO Monil Kothari is hoping will arrive in time for the holidays.

But “we will have shortages this holiday season and into next year”, he said.

Loftie’s Hassett also has a shipment landing in time for Black Friday, but he has missed out on sales. “We could’ve made 50% more sales if we had enough inventory,” he said.

(Reporting by Deborah Sophia and Savyata Mishra in Bengaluru; Additional reporting by Siddharth Cavale in New York; Editing by Josephine Mason and Arun Koyyur)