Tariffs and the Price of Tools

[onocoffee]

Those of you not from the United States may have heard that the US is putting tariffs on all sorts of products. A dealer I spoke to today was telling me that, if I needed any equipment in the coming months, to consider buying it this month. Evidently, manufacturers are expecting to raise prices by 30% as soon as April.

I don't know if these prices increases will appear worldwide or just within the United States, but you might consider planning accordingly.

 

[Vondawg]

Well that’s an interesting sales angle we need to Breath….negotiations at these levels are often misunderstood and temporary back and forth within higher levels of talks and taken advantage of withprice adjustments…..buy now and save

 

[Cheese]

Just received this today from Dash-Board.

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[Packard]

I am doubtful that manufacturers will pass along all of the cost of the tariffs.

On Monday I went to the local factory Sketchers Shoe store based on two factors:

1.  I was going to need a new pair of shoes fairly soon.

And…

2.  I read that nearly 100% of all footwear was made or assembled in China, Viet Nam or Mexico, with a smattering in other Asian countries, all, or most of which were going to be hit with tariffs.

I figured that buying  now would would save me money.

When I got there they were holding a sale: Buy 2 pair and the second pair is at half price.

All of which means that if they get hit with a 10% tariff, they could choose to pass along all of that cost, some of that cost, or none of that cost.

Some other items, like automobiles, operate at much tighter margins and will likely pass along most or all of that cost.

But some items that are rarely discounted, like Festool, will have generous profit margins, will consider the market implications of passing along the tariffs.

I suspect that some vendor will advertise, “Buy now, and we will pay the tariff on your purchase.”  (Which might sound more generous than it is.)

A $1,000.00 retail purchase will likely have a dealer cost of $500.00, and a tariff of $50.00.

“Originally sold for $999.00, now just $949.00. (Yes, we will pay the tariff so you don’t have to.”)

In the (I believe the President Reagan years) there was an added tariff of 10% on imported tires that had to be shown as a line item on invoices.  So when you bought an imported tire from a dealer you knew exactly what they paid for it.  It made negotiations for better pricing easier.

That phenomenon will be the wrench in the works.

But in any case, I don’t believe that all the cost of the tariffs will be passed along to the consumers.

 

[MikeGE]

But in any case, I don’t believe that all the cost of the tariffs will be passed along to the consumers.

I like your optimism, but I don't think vendors will absorb the increases.  In June 2018, during a similar round of tariffs, the CEO of Grizzly Industrial posted a notice at Sawmill Creek, and likely other discussion boards, announcing a 25-percent increase in prices as a direct result of the tariffs.  Any item arriving at the Grizzly facility after 6 July 2018, including backordered items, would be charged the increased price.  The cost of the tariff was being passed on to the customer.

 

[Packard]

But in any case, I don’t believe that all the cost of the tariffs will be passed along to the consumers.

I like your optimism, but I don't think vendors will absorb the increases.  In June 2018, during a similar round of tariffs, the CEO of Grizzly Industrial posted a notice at Sawmill Creek, and likely other discussion boards, announcing a 25-percent increase in prices as a direct result of the tariffs.  Any item arriving at the Grizzly facility after 6 July 2018, including backordered items, would be charged the increased price.  The cost of the tariff was being passed on to the customer.

I think it will vary from vendor to vendor.  We will see shortly.  But Grizzly’s to raise the price 25% smacks of opportunism.

If the item was originally selling for $2,000.00 and was increased by 25%, the new price would be $2,500.00.

But most retailers keystone (double) their cost to purchase.  So the $2,000.00 item originally cost them $1,000.00.  Add 25% and you get a tariff cost of $250.00.  So passing along the cost will bring it to $2,250.00, not $2,500.00.

I think we will see some of that too.

I think we will see some of this too: “Management has decided to absorb part of the cost of the tariff.  The new price will be $2,249.00”.

The “absorbed” part could be as little as one dollar, or as much as all the increased cost. The decision will be a marketing one.

 

[MikeGE]

I think it will vary from vendor to vendor.  We will see shortly.  But Grizzly’s to raise the price 25% smacks of opportunism.

To be clear about the 2018 Grizzly CEO's announcement from my feeble memory, the price increase affected only those items that had not shipped from the manufacturer, were still in surface transit, or had not cleared U.S. Customs prior to the 6 July 2018 tariff date.  Items that were still in the container at the dock waiting for follow-on shipment to Grizzly were not affected by the price increase.  If I can find the thread on SMC, I'll edit this post and include it.

 

[Packard]

Because this thread is going in a direction that many people have little knowledge, I am providing a link about retail pricing and a quote about “keystone” pricing.
https://www.shopify.com/retail/product-pricing-for-wholesale-and-retail

Keystone pricing method

The Keystone pricing method is fairly straightforward. It involves setting the retail price of a product at double the wholesale price—essentially, the retail price is 100% markup over the wholesale cost. Here’s the formula to calculate wholesale prices:

Wholesale Price = Retail Price / 2

This is arguably the most straightforward wholesale pricing approach you can take. It’s simple math and doesn’t depend on any advanced calculations.

However, Keystone pricing doesn’t account for factors like competition, demand, or perceived value. This approach may not always provide enough profit margin to cover operating expenses and generate profits.

You also need to know the end retail price before you can set the wholesale price, which limits your buyers to how they can price your products for their customers.

 

[Tom the Remodeler]

My standard contract language includes a clause explaining that 100% of any costs related to tariffs will be passed directly to the client, and I also explain this in my communications in case they miss it in the fine print. For what it's worth, there's also an escalation clause as well.

My day-to-day pricing reflects what I think is the best balance between risk/value to the client, and certainly does not include leeway for wild swings in tariffs. Nearly all of my tooling and window supplies are imported from Canada, so I make sure to explain to my clients that Federal policy is directly affecting the cost of their window repair project....

 

[ChuckM]

No one size fits all solution here. Each business/sector/industry is different and their responses will be different. But the pressure for prices to go up will be universal.

Walmart is reported to have asked exporters based in China to absorb all or part of the tariffs but the Chinese government has stepped in and given instructions to the exporters to hold an official line. That is understandable because in a trade war, no party wants to be seen as the only losing side, letting the other side get away with no consequences.

When it comes to tools, the trade war won't affect me as I'm at a stage of planning to dispose of some of my tools.

 

[Packard]

The last Kreg item I bought said something like “Made in the USA using domestic and imported components.”

So, if the Kreg tracks are made from imported aluminum, they will pay one price.  If the track is made from long (generally 20 to 24 feet long) extruded “sticks” and the post-extrusion operations are done domestically, they would pay another price.

If they are buying the extrusions domestically, they will save all of the tariff costs—which of course, is the entire strategy behind tariffsto promote domestic production.

What other vendors are “Made in the USA?”

Woodpeckers?  TSO?  Others?

 

[woodbutcherbower]

Those of you not from the United States may have heard that the US is putting tariffs on all sorts of products.

Are you kidding? Everyone in the world knows what's happening over there, because every news broadcast in every European and Scandinavian country features daily reports on the unfolding circus. Meanwhile, our citizens stand back and watch with our jaws on the floor.

 

[Packard]

Those of you not from the United States may have heard that the US is putting tariffs on all sorts of products.

Are you kidding? Everyone in the world knows what's happening over there, because every news broadcast in every European and Scandinavian country features daily reports on the unfolding circus. Meanwhile, our citizens stand back and watch with our jaws on the floor.

There are all sorts of things appropriate to this conversation that we have to steer clear of because they are political in nature.

So, let’s be circumspect going forward. 

I see absolutely nothing wrong with this post, but I see how it could veer this thread towards the Bermuda Triangle of forum threads where interesting discussions go to disappear.

I see this as perfectly fine as a discussion of buy-now-or-wait tactics for tool acquisition.

 

[woodbutcherbower]

[member=74278]Packard[/member] You’re completely right, and my post was a simple reply to say that yes - we do know all about this stuff and its implications over the pond. Politics have no place here, and I deliberately didn’t go anywhere near that topic. I hope that everything works out for you.

Kevin

 

[onocoffee]

I was trying to adopt a moderate approach.

To the credit of this group and why do respect the members here, I saw a similar thread in another woodworking group and it's the typical fanaticism I see here in my daily life.

That is exhausting.

 

[semenza]

Let's keep the self moderating going in this thread.  [thumbs up]

Seth

 

[Steve1]

To be clear about the 2018 Grizzly CEO's announcement from my feeble memory, the price increase affected only those items that had not shipped from the manufacturer, were still in surface transit, or had not cleared U.S. Customs prior to the 6 July 2018 tariff date. 

Retailers have to be careful about when to time their price increases.

If they are stocking a product, sure their current inventory was purchased at a better price, but they risk being put in the situation where they re-order at a 25% price increase and then the tariff is eliminated, and then they are stuck with inventory that they can't sell at a price that earns them a profit.

 

[Azheim]

Bumping this thread with more concrete numbers. 

As I understand it, this is more sweeping than the 2018 tariffs, which I believe were more targeted to steel and aluminum. Whereas these new tariffs apply to all imports.

With a 20% tariff on all German imports expected to take effect on April 9, I wonder if we can expect a more substantial Festool price bump than usual this year.

 

[semenza]

Just a heads up ..................  the likely hood of this and similar discussions not going off the rails is slim. So please don't be surprised if the topic (s) get locked or disappear.

Seth

 

[tsmi243]

To be clear about the 2018 Grizzly CEO's announcement from my feeble memory, the price increase affected only those items that had not shipped from the manufacturer, were still in surface transit, or had not cleared U.S. Customs prior to the 6 July 2018 tariff date. 

Retailers have to be careful about when to time their price increases.

If they are stocking a product, sure their current inventory was purchased at a better price, but they risk being put in the situation where they re-order at a 25% price increase and then the tariff is eliminated, and then they are stuck with inventory that they can't sell at a price that earns them a profit.

Just one example of the MANY things that some people don't think about when making decisions.

Consumers, I mean.  Nothing political of course.