TRADE WAR SURVIVAL STRATEGY
Some US importers embark on major revamps of product lines. By John Ruwitch in Shanghai and Timothy Aeppel in New York
When US President Donald Trump threatened in May to raise tariffs on more Chinese goods, management at California-based NewAir Appliances knew they needed to do something or their business would be in trouble.
The importer of beer fridges, ice makers and other household devices — all sourced from China — had tackled 10% tariffs imposed last year by seeking to cut costs and negotiating with retailers for better terms.
But the prospect of a 25% tariff — still on hold pending the outcome of new trade negotiations — presented a much bigger challenge. And President Donald Trump’s announcement last week of a 10% tariff on a further US$300 billion in Chinese imports starting from Sept 1 will mean even more headaches for American manufacturers and consumers.
NewAir’s four-member leadership team began to formulate a more radical plan. There was a “level of tension”, said Andrew Stephenson, vice-president for marketing, but no sense of panic.
The result: an ambitious overhaul of its product offerings, with 50-60 new or revamped goods set to come on the market this year — a move that allows the company to hit the reset button on pricing as its costs leap.
The product turnover is a huge increase for NewAir, which has a range of 70 goods and usually introduces 10 or fewer new items each year.
Like NewAir, many importers of goods from China have had to make difficult business decisions and sharp changes in strategy as they reel from the impact of US tariffs on $250 billion worth of Chinese goods.
With consumers and retailers often unwilling to accept higher prices for the same products, tactics range from accepting lower profit margins, to cost-cutting that may include lowering wages or laying off workers, to shifting production from China to other countries.
While the approach taken by NewAir and others in the sector requires significant investment, it underscores how the year-long US-China trade war is forcing some companies to adopt novel workarounds as they fight for long-term survival and bump up against the limitations of belt-tightening.
“Instead of cutting costs we’re going to add some costs, but in the long run it will pay off,” Stephenson said by telephone after a trip to China to meet suppliers.
Working closely with suppliers to develop products, he is also taking steps such as air-mailing samples to the US instead using cheaper maritime freight, aiming to slash up to a month off the process of getting goods approved.
“Basically, anything we can do to expedite the process is what we’re looking at doing,” he said.
NewAir, with 50-plus employees, would likely spend “hundreds of thousands of dollars” on the project and is considering hiring a marketing manager, as Stephenson’s focus shifts to dealing full-time with trade war strategy.
NewAir, whose products are sold under its own brand as well as under licence with Magic Chef, Frigidaire and PepsiCo Inc, is still discussing ways to share the burden of the tariffs with Chinese suppliers and American retailers. It is also looking into sourcing some goods from India and Mexico.
But the cornerstone of its new strategy is the overhaul of its product line.
In addition to items it has not sold before, such as internet-enabled wine fridges and combination air fryer ovens, NewAir will retire some old products and give others that have been modified fresh SKUs, or stock keeping units — unique product numbers that retailers use to track inventory. That will allow NewAir and its retailers to set new prices.
Jim Estill, CEO of Danby Appliances, a Canadian company that sources similar products from China and sells many in the United States, calls the strategy “upfeaturing”.
“If you’re already buying a minifridge for $129 and now it’s $149, you’re up in arms. But the psychology is completely different if you say, ‘Here’s the new XYZ, it’s $149’ — and the customer checks the market and sees everyone is charging $149 for the same thing, it’s acceptable.”
NewAir CEO Luke Peters said retailers and consumers will get better products and will not see “a huge 25% increase” in prices.
“Our customers, who also have to be profitable, are going to see more value in the products that we’re giving to them. So it’s kind of forcing us to be more innovative,” he said.
“Instead of cutting costs we’re going to add some costs, but in the long run it will pay off” ANDREW STEPHENSON
Marketing VP, NewAir