Tariffs & trade developments—week of 4/21

How brands are approaching cost negotiations and rising prices  

Last week, we shared how brands are grappling with the disruption caused by tariffs, with a particular focus on solidifying short-term supply chains and inventory. Though individual circumstances differ greatly for every business, tariff-related challenges seem to be settling into three broad groups:

1. Brands that are reliant on manufacturing in China and other high-tariff markets are heavily disrupted. They face significant cost pressures and are managing US inventory very tightly.  

2. Brands that source raw materials or product inputs like parts and packaging internationally are facing increased costs that they are navigating in an attempt to protect margin.  

3. Brands that predominantly source and manufacture locally in the US see the current moment as an opportunity strengthen positioning as competitors face increasing costs and divert resources to solving tariff-induced challenges.  

This means some businesses are massively disrupted, while others are looking to seize the opportunity and increase investments to gain an edge.  

Brand approaches to rising costs  

Brands are still grappling with the challenge of managing increasing costs. Some are planning to absorb the costs themselves while renegotiating with suppliers. For others, that is untenable and they will need to pass the cost onto retailers while they reassess their portfolios and potentially rationalize SKUs. These decisions are being made as brands balance their own profitability and growth targets with needing to remain competitive with the rest of the category.  

More brands are transparently sharing the cost pressures they’re facing with their retailer customers, and retailers are showing more openness to discuss this issue than in previous weeks. Heavily impacted brands are looking for immediate cost pass throughs, which are not being widely approved, though increases later in Q2 or early Q3 may be more accepted. In the most severe cases, some brands are planning to decline purchase orders and hold shipments if tariff-related cost increases are not accepted.  

Because of the evolving tariff policy and rapid adaptations made by brands, many JBP discussions are not yet landing on immediate cost adjustments. While conversations may not produce immediate changes, retailers are looking for transparency around brand operating costs to enable more collaboration and give them more time to prepare should they ultimately accept cost increases and decide on price increases.

We do not expect universal cost increases to be approved in the short-term, but we do expect prices to go up for the most impacted products. The competitive dynamics in an individual category will dictate price changes, making it much more likely that we see categories gradually increase, driven both by short-term tariff adjustments and the medium- and long-term increases related to rising material costs.

While retailer-brand negotiations are ongoing, we are seeing more instances of brands notifying their consumers about impending price increases on direct-to-consumer sites, social, and email, and explicitly connecting it to tariffs. The most visible communication seems to be coming from heavily impacted categories like toys, baby, and others reliant on international manufacturing and sourcing. Most brands are emphasizing transparency to build trust with their consumers while encouraging short-term purchase behavior.  

What brands need to evaluate & plan for now

While uncertainty remains amidst shifting tariff policy, in the short term, there are actions that brands must take to better position themselves for growth, margin protection and partner negotiations.  

• Map item-level profitability to identify strengths and risks
• Segment portfolio by price elasticity to inform potential SKU rationalization choices
• Workshop multiple tariff scenarios and required trade-offs should they happen
• Engage retailer partners early in your plans

Flywheel's Consulting and Retail Insights teams are ready to help develop custom pricing strategies for your brand. Let's connect.

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