This article was originally published in Axios.
November 20, 2024 | LINK
Distressed retail and CPG companies in tariff crosshairs
President-elect Trump's promise to raise tariffs would hurt apparel and durable goods manufacturers and retailers, in particular, says Bea Chiem, retail director at S&P Global Ratings.
Why it matters: It would add to the list of distressed consumer companies and cause an uptick in defaults for those already under pressure — likely driving more bankruptcies and firesale dealmaking in the sector.
Between the lines: "Predicting what was election bluster and what can be enacted by a new administration and Congress is near impossible," says James Gellert, executive chairman of RapidRatings.
- "Those preparing to take him at his word must expect a radical impact from 20% to 60% tariffs, depending on which country and region is in question," he says.
- Organizations should be vetting the financial health of suppliers, evaluating support opportunities, and bolstering supplier communication to mitigate the potential impact, Gellert says.
Yes, but: "No doubt lower corporate taxation and less regulatory oversight will be a boon for the larger public market companies most easily observed in the Dow, S&P 500, and mega-cap names," Gellert says.
The bottom line: Tariffs are more likely to "increase costs for businesses, not 'punish' bad guys" shifting jobs overseas, Gellert says.
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RapidRatings Executive Chairman James Gellert recently spoke with Axios about the potential risks posed by the Trump administration's new tariffs.
These tariffs will likely disrupt the global supply chain, placing additional strain on already stressed suppliers. As RapidRatings has consistently highlighted, today's private and middle-market suppliers are operating in a challenging environment. With limited leverage, these suppliers will be forced to absorb the lion’s share of increased costs imposed by tariffs. This, coupled with existing pressures from declining profit margins and rising costs of goods, labor, and capital, could further exacerbate their financial difficulties.
Given these circumstances, it is imperative for companies to gain a deeper understanding of their suppliers' financial health.
As we've seen over the past four years, risk is a certainty. Suppliers who have worked closely with end customers to overcome challenges such as rising interest rates, increased costs of goods, geopolitical tensions, and more, will be better equipped to implement solutions against tariffs.
Strong supplier relationships and financial health monitoring are essential for mitigating the impact of tariffs. Companies that prioritize sound risk management and leverage financial health as a key indicator to identify potential risks will be more resilient, better protected, and less vulnerable to unexpected disruptions.
