SHANGHAI / NEW YORK (Reuters) – U.S. Pat. In May, President Donald Trump tweeted his intention to raise the tariffs for Chinese goods, the California-based NewAir Appliances management said they needed to do something, or their business would be in trouble.
The importer of beer coolers, ice cream makers and other household appliances – all sourced from China – had tackled 10% tariffs imposed last year by trying to cut costs and negotiate with big box and other dealers for better terms.
But the jump to 25% tariffs gave a much bigger challenge.
The day after Trump's tweet, NewAir's four-member management team met for lunch and began to formulate a more radical plan. It was a "level of excitement", said Andrew Stephenson, the company's vice president of marketing, but no sense of panic.
The result: an ambitious overhaul of the product offerings, with 50-60 new or renewed items to come on the market this year ̵
Product sales are a huge increase for NewAir, which has a range of around 70 items 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 the strategy as they reel from the impact of US tariffs on $ 250 billion Chinese goods.
With consumers and retailers who are often unwilling to accept higher prices for the same products, often heard tactics vary from accepting lower profit margins, to cost cuts that may include lowering wages or lay off workers, to shift manufacturing from China. to other countries.
While the approach taken by NewAir and others in the sector requires significant investment, it underlines how the longstanding commercial war between the United States and China forces some companies to adopt new solutions as they struggle for long-term survival and face the constraints of belt tension.
"Instead of cutting costs, we'll add some costs, but in the long run it'll pay off," Stephenson said after a trip to China to meet vendors.
In collaboration with suppliers to develop products, he also implements measures such as air emission tests to the United States instead of using cheaper maritime freight, with the aim of cutting up to one month of the process of getting approved goods.
"Basically, all we can do to speed up the process is what we are looking to do," he said.
NewAir, a 50 plus employee company, is likely to spend "hundreds of thousands of dollars" on the project and considered hiring a marketing manager as Stephenson's focus is shifting to full-time trading war strategy.
NewAir, whose products are also sold under its own brand as under license with Magic Chef, Frigidaire and PepsiCo Inc ( PEP.O ), still discuss ways to share the burden on customs with Chinese suppliers and US retailers. It also looks to buy some goods from India and Mexico.
But the cornerstone of the new strategy is the review of the product line.
In addition to goods that it has not sold before, such as internet-enabled refrigerators and combined deep-freezers, NewAir will withdraw some old products and give others who have been modified fresh SKUs or inventory units – unique product numbers that retailers use to track inventory. This will allow NewAir and its dealers to set new prices.
Jim Estill, CEO of Danby Appliances, a Canadian company that retrieves similar products from China and sells many in the United States, calls the strategy "performance".
"If you already buy a refrigerator for $ 129 – and now it's $ 149. You're up in your arms. But psychology is completely different if you say: & # 39; here's the new XYZ, it's $ 149 & # 39; – and the customer checks the market and sees everyone charging $ 149 for the same, that's acceptable. "
Danby expects to turn 80% of its product range around 300 items in 2019, compared to a normal rate of 30 %, he said, adding that improvements in technology had made this an appropriate time for product updates.
“If this happened 10 years ago, it would have been tough to say that my white box is different. But now you can say that I have a freezer that sends you an email when the power is out. "
Danby, which generates an annual revenue of around $ 400 million, estimates the cost of upgrading its product line to around $ 4 million.
If the strategy works, it partially switches some of the cost of tariffs designed to damage China for the US consumer. But it's not risk-free.
“When you sell new products at significantly higher prices, it will affect demand somewhat because you are now asking people to upgrade to a better product at much higher prices. How many consumers will have such budgets? "Jing Bing, a marketing associate at the Cheung Kong Graduate School of Business in Beijing, said.
The point of conducting a trade war is "to ask American consumers to leave Chinese produced products," he said, adding: "It's just the effect."
CEO of NewAir, Luke Peters, said dealers and consumers will get better products and will not see "a huge 25% increase" in prices.
"Our customers, who must also be profitable, will see more value on the products we give them. So it forces us to be more innovative, he said.
But whether importers like NewAir can find a balance between higher prices and demand remains to be seen.
"It's going to be a story for us, that's about six to nine months," Stephenson said.
Reporting by John Ruwitch in Shanghai and Timothy Aeppel in New York; Additional reporting by Nandita Bose in Washington and Jane Ross in Los Angeles; Editing by Edwina Gibbs