💰 Hello Tariffs, Goodbye Bello

Hey Sellouts!

We’ve spent a lot of time talking about digital marketing and boosting your online revenue.

Yet, one crucial piece we haven’t covered yet is the cost of goods sold, in other words, what it actually costs you to produce each product you sell.

Unfortunately, I’ve got some bad news.

That cost? It’s about to go way up.

The culprit? American tariffs.

When tariffs rise, import expenses skyrocket and online stores typically have to increase their prices.

We’ve seen this situation before, most notably during the COVID supply-chain crisis.

Shipping fees went through the roof, inflation soared, and consumers got super price-conscious.

Many big brands took a major hit, including a $200M baby-products empire we’ll talk about in a minute.

Let’s dive into how you can turn tariffs into an opportunity and avoid the fate of some big players that learned these lessons the hard way.

What’s The Risk?

In January, the US will change governments.

The incoming administration is promising massive taxes on imported goods from around the world.

Those tariffs could get up to 60% for some goods and may include 25% tariffs on the US’s top two trade partners (Canada and Mexico) or even a universal 10% tariff on all imports.

A lot of businesses are taking this risk seriously, while some are in “wait and see” mode.

Although this most directly impacts businesses selling foreign-sourced products in the United States, the expected long-tail impacts on inflation mean you could be impacted no matter where you are or what you sell.

Customers usually respond to inflation by becoming more price-conscious, looking for higher quality to justify costs or falling into smaller subsegments.

If you aren’t prepared for those impacts, you could be the one losing customers to better-prepared mega corporations with more resources to adapt.

The Bello Blowout

For example, think back to 2021-2022:

• Up to 25% in Trump/Biden tariffs on Chinese goods impacted hundreds of billions in imports

• Shipping costs skyrocketed due to supply chain disruptions

• American customers became price-shocked and spending slowed to some of the slowest growth since the Great Recession

All of these factors resulted in doom for lots of promising ecommerce businesses, including forcing bankruptcy on actress Kristen Bell’s DTC baby retailer, Hello Bello.

At first, the disruptions were good for Hello Bello. They saw growth because they already had a strong online service with subscription-based customers.

As fewer people could buy diapers in stores, they turned to a trusted subscription like Hello Bello. From founding in 2019 to the end of 2021, the company grew to nearly $200M in revenue.

Yet by 2023, the company was running in the negative. What changed?

Increased costs due to supply chain disruptions, general inflation, and tariffs drove up Hello Bello’s costs.

Big retailers like Amazon could control their costs while Hello Bello was forced to eat huge wholesale cost spikes. That made Hello Bello uncompetitive.

They responded, but too late, by building their own factory and cutting corporate staff by 20%.

With hindsight, we can say Hello Bello would have fared better if they had:

1. Diversified suppliers to be more agile and have better negotiating power

2. Had a larger inventory stockpile to spread out price increases

3. Kept a smaller corporate workforce

The Opportunity

Here's what fascinates me: while most see tariffs as a threat, they're actually a big opportunity for nimble operators.

As existing businesses falter, customers will move to somebody better positioned to speak authentically and price effectively.

Not to mention many incoming tariffs are explicit in their goal to target Chinese goods.

Increased prices from storefronts like Temu could create very interesting opportunities to reach customer segments who never would have considered you before.

With changes potentially just weeks away, it’s still not too late to start preparing.

But what should you do?

True Classic’s success story

One company that did do both these things during the same period is True Classic, a brand we discussed a few weeks ago.

Despite doing all their manufacturing in China, True Classic was able to leverage pandemic growth into long-term success.

True Classic isn’t immune to the environment: their prices have increased by over 11% since summer 2022 – that even outpaces inflation.

But they were able to keep prices stable during the peak shipping crisis in 2021 and 2022.

They had a large stockpile of inventory already ordered before prices spiked, meaning they were able to diversify suppliers and spread price increases across a wider period.

That meant that as consumers became more price-conscious, True Classic stood out as a brand that delivered on time and for a reasonable price.

They made their own luck by:

• Building relationships with 10 manufacturing plants across multiple countries

• Maintaining capacity to order 200,000-300,000 pieces at once

• Creating buffer stock to handle 30-day shipping delays

• Niching down into a core target market and product range

Planning for challenges

Tariffs are not a second pandemic, but they could have similar impacts on prices, shipping reliability and consumer sentiment.

The smartest players aren't waiting for tariffs to hit – they're already diversifying their manufacturing base. Look at these examples:

• Yeti is targeting 50% of drinkware production outside China by the end of 2025

• Traeger moved 20% of grill production to Vietnam

• Fortune Brands cut China exposure from 50% to 25% of their cost of goods

Key Takeaways:

• Start diversifying suppliers now, before everyone else does

• Build inventory buffers where possible

• Model multiple scenarios to understand your breaking points

• Look for gaps created by larger brands raising prices

Action Items:

1. List your three most critical products and identify alternative suppliers

2. Calculate how much buffer stock you can reasonably maintain

3. Model what a 15-20% cost increase would do to your margins

4. Only scale your workforce as needed. Instead focus on product & customer

Last week’s edition was titled ‘Everything is Hard’ and tariffs are one of those things in ecommerce which make it difficult but with some proper planning and risk-mitigation, you’ll be more than fine.

Until next time, keep selling out!
Luke

• Was this email forwarded to you? Subscribe
• Want to put your Google Ads on Autopilot? Stress Less
• Did I miss something? Let me know at [email protected]