The combination of the Biden administration’s tariffs, President Trump’s proposed tariff hikes, and changes in China’s trade relationship will impact U.S. private label and direct-to-consumer brands and cause some to reconsider their sourcing strategies for 2025.
Private label and DTC products are some of the most profitable for sellers. Although relatively few retailers and DTC brands manufacture their products in-house, their products tend to cut out multiple “middlemen” and often more than double profits.
For example, a pet food retailer clears 25 points (0.25%) on a popular premium dog food brand, even though both products are manufactured in the same facility and using a similar recipe. The label version has a chance of clearing 55 points. Dog owners pay about the same price, or perhaps a little less, for private label brands.
U.S.-imposed tariffs and changes in China’s trade relationship could reshape supply chains.
private label sourcing
The private label brands on the physical and virtual shelves of U.S. retailers come from factories around the world, including China and Mexico.
Brand managers identify gaps in the market and find manufacturing partners to build, sew, and manufacture products that fill those gaps. Amazon does this for over 100 products private brand We represent thousands of products.
Manufacturer selection These products involve factors such as quality, price, reliability, regulatory compliance, and more recently, trade tariffs and policies.
trade situation
Tariffs were a top priority for a group of private label managers sitting around a large conference table during a November 2024 meeting discussing plans for 2025.
I was invited to learn more about their business, which includes 30 private labels with hundreds of products sold through a network of 800 stores and 30 e-commerce sites. My job was to support potential promotion and go-to-market plans, but each manager was focused on the shift away from China.
While the broad topic was “tariffs,” managers focused on three specific points that could impact their private label relationships in China.
- In May 2024, Biden administration announced It would raise China’s tariffs on some strategic goods. The maximum tariffs will be 7.5% to 25% for steel, 25% to 50% (until 2025) for semiconductors, and 100% for electric vehicles.
- President-elect Donald Trump has imposed tariffs of 10% to 20% across the board on imports, including 60% tariffs on many Chinese products and 25% on imports from Mexico. It proposes to impose tariffs ranging from 100% to 100%.
- U.S. Representative John Moolener (R-Michigan) introduced this as follows: “Revival of the Trade Fairness Act” On November 14, 2024, China’s permanent normal trade relations status will be revoked.
These tariff and policy changes could have a significant impact on the U.S. retail industry.
National Retail Federation Estimation U.S. shoppers will lose “$46 billion to $78 billion in purchasing power annually” due to the increased tariffs.
“Retailers rely heavily on imported products and manufactured parts to offer customers a variety of products at affordable prices,” said Jonathan Gold, vice president of supply chain and customs policy at NRF. . “Tariffs are taxes paid by U.S. importers, not by foreign countries or exporters. This tax ultimately comes out of consumers’ pockets through higher prices.”
But Jan Kniffen, CEO of retail investment consultancy J. Rogers Kniffen WWE, disagrees. he told CNBC He “wasn’t as worried about tariffs as a lot of other people thought.”
Kniffen noted that when President Trump introduced tariffs in 2018, they were absorbed by Chinese manufacturers desperate for access to the U.S. market.
“The last time we imposed tariffs, nothing happened. We didn’t see a significant increase in inflation. We didn’t see a spike in retail profits,” Kniffen continued.
Kniffen said China’s economy is much worse now than it was six years ago, which likely means Chinese factories will cut prices again to absorb the new tariffs.
procurement behavior
Nevertheless, the private label executives around the table have decided not only to exit China because of tariffs, but also because of unpredictable relationships, supply chain stability, and improved profit margins. I was planning.
Depending on the product, brand managers suggested manufacturing in other Asian countries, partnerships in Europe or South America, or even with suppliers in the United States.
The group has acquired its first U.S. manufacturing operation, increasing profits and taking control of its own destiny.
This strategic shift may reflect broader trends toward supply chain diversification and a renaissance in domestic manufacturing, and could reshape the future of private label and DTC brands in the U.S. market. be. Making things that move closer to the consumer It will probably be a top priority in the coming years.
