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This is Winnie Caesar, Global Head of Strategy. And today I am delighted to be joined by Michael Koiman, who is probably a name not familiar to most of our listeners, but he is someone here and dear to my heart because he is one of our neighbors and also a small business owner. He has a retail store that has Christmas and outdoor furniture, and he's also involved in the local Charlotte magazine business with a number of other small business owners. I figured he would be a great person to talk to, to go through what the heck is going on with tariffs, how is this impacting small and medium-sized enterprises?
And Michael, thank you so much for joining me today. Yeah, thanks for having me Winnie. It's nice to be able to have an adult discussion away from the playground in the neighborhood instead of watching the kids. I mean, I do really enjoy our kid time discussions and delight in the friendship that your daughter and my son have.
But yeah, we're going to talk all things. Tariffs, supply chain, retail today. So I am really excited really to figure out whether Christmas is going to be canceled or not in 2025. So I guess let's start with kind of the mechanics of your store.
You know, you have a Christmas business, you have an outdoor furniture business. You know, how does the inventory supply chain system work? It seems like there are a lot of China exposed imports in both the outdoor furniture and Christmas business. In fact, I saw a stat that over 80% of Christmas holiday items are sourced from China.
Can you give us a quick lay of the land on your suppliers, perhaps talk a little bit about how long you've been working with them? Yeah, for sure. China is definitely the number one supplier of Christmas to our businesses. And I would think everyone else in the States, probably in the world.
Same goes for the outdoor furniture. Some of that's a little more diversified as far as other countries throughout the world, particularly Southeast Asia. I mean, a little bit of it actually in the United States. There's still some some done here.
But yeah, for the Christmas business, it is mostly China. There has been a little bit of a move with a lot of suppliers since the first round of tariffs every many years ago. That is now seven years ago to move to other countries as much as they can. But those tariffs were kind of on a lower level.
So it could be absorbed throughout the chains. But these, you know, this most recent scare of up to close to 150% really got people, people worried this time. So a lot of our furniture is coming from Vietnam now. We've had a few different vendors that moved from China to Vietnam.
But as far as the Christmas business goes, it's still staying predominantly in China. All right. So China is the basis for Christmas in the United States. I find that fascinating.
So you mentioned the triple digit tariffs that were temporarily in effect on imports from China. I have seen so many numbers around the tariff rates. And there are so many different components to the tariff rate. So what is the tariff rate currently for your stuff from China?
If you were to get a shipment of inventory today or place an order today, like how are you thinking about the tariff rate? Yeah. So we buy full containers where we're buying it, where it is manufactured in another country, loaded onto a container, comes to us, comes into Savannah, Charleston, gets unloaded. So on those, we are seeing an actual tariff rate than on anything that we're buying less than a container of, where an importer would bring it in, then break it up and sell it to a lot of different retailers.
We're just kind of going on like their surcharge. They can kind of make that up as they can negotiate a little with the factory, maybe whatever importer they're using and see where they can absorb it. Some are doing, like if they import some from India, some from China, they'll try to maybe put a little bit more of a tariff on India than they need to, but a little bit less on China to kind of even things out. It's been really hard with just to keep up with what should we do.
Like a lot of the vendors were just asking what they can do to help us and just give us a clear path forward, clear pricing, and that's what they weren't able to give us. So when we had the big triple digit tariffs in place, vectors were still running at the beginning, but they weren't shipping anything. So I think that one of the problems is going to be ocean freight pretty soon here. It's rushing to get everything out of China, so those rates have already started to increase.
So even if the tariffs come down, ocean freight may go up and has started to go up. So a lot of different moving parts and hard to know how to order how to plan for the next season. We're typically ordering at the end of one season for the next. So by most of our product for Christmas in January, and of course, it has to get made and shipped over here, get into our warehouse, then we price it so that we're ready to display it by October, November, and then send for the outdoor furniture, and then July.
So it's pretty long lead times and hard to make decisions, but we've just kind of been forging forward and doing what we can and pivoting where we need to. So it sounds like for Christmas, most of your ordering probably kind of already happened, and now it's just a matter of when it is actually going to hit the US port to determine what your tariff rate is going to be, whereas for the outdoor furniture season for 2026, it's a little bit up in the air as to what things are even going to look like, which I mean, my job involves a lot of forecasting. I can only imagine how impossible it is to forecast anything for you right now. Yeah, particularly when now it seems that territory applied when it hits, or the rate is applied when it hits port here in the United States.
So it could leave China and it takes a month for it to get to port here, and a lot can change in a month as we know. So yeah, you never really know until the day that it's actually import and it has gotten through customs what that rate is going to be. Yeah, that is so difficult. I mean, I feel for the people in customs who are having to figure all of this out because as you mentioned, there's a different rate for so many different types of imports, and even from the same item from the same country might have a different levy put on it.
So I'm curious, when you're thinking about kind of profit margins, retail in general, especially brick and mortar has had some challenges lately. I can't imagine that even a double digit tariff rate is particularly economic, especially then when you're thinking about spiking in transit costs and all of those things. But as a Christmas consumer, I've always wondered about that $500 artificial tree or the outdoor furniture that certainly feels expensive anytime I have to buy it. How are you thinking about the potential hit to your margins?
It's hard to find a $500 Christmas tree anymore. You know, five years ago, that was kind of the average. It's probably double that now, but we are in the higher end on the furniture and on the Christmas trees. But yeah, I mean, obviously we have to pass some of it along.
We do what we can to absorb some and then our importers that we're buying from, they're absorbing some and then the consumers going to have to absorb some. So kind of the way I look at it, there's four kind of people in the chain, the factories in China, the importers that are in the US, American companies, the retailers who are in the US and then the consumers. So really like three out of four of those entities are absorbing the tariff. So some of it is the factory, obviously, and I'm sure they're hurting, but yeah, there's going to be pressure all throughout the three quarters of that chain that are here in the US as well.
Also talking about a $500 Christmas tree or we sell $7,000 outdoor sofas that are produced in China. So it's not just little chachis, you know, a little ping pong paddle or, you know, it's, they've got some high quality, highly specialized production that is happening there. So $4 for an ornament instead of $3 isn't that much, but $4,000 for a sofas instead of $3,000 can hit the pocketbook a little more for consumers. So I think we're probably getting to the point where we're going to start seeing that a little more warehouses were probably pretty well stocked at the beginning of this.
But now they're starting to run out, they're having to restock and they're going to be restocking at higher prices. So I think consumers will start feeling that a little bit here soon. Yeah, we've been definitely kind of viewing the entirety of tariffs and all these headlines as inflationary irrespective of what the tariff rate is because having that uncertainty, you know, it requires people like you to start to test the waters for like, where can I calibrate pricing to maintain some balance of demand and also profit margins. And then, you know, as you highlighted across the entire value chain from, you know, production to importers to retailers, there are just higher prices that need to be absorbed one way or another.
So you kind of mentioned around inventories and warehouses, you know, presumably at kind of elevated levels, how to get into this. We've also heard about, you know, maybe people stashing inventory and warehouses in Mexico, you know, hoping for that tariff pause that we eventually did see, although as you pointed out, the pause is really not all that beneficial, like it's sure 150% down to something else is better, but it's still not great. Were you looking at creative solutions, trying to figure out, you know, what am I going to do to have everything ready for Christmas in October, November, September, it feels like Christmas comes earlier every year. Yeah, and we have to get it in even earlier.
We always get the folks, you know, when we set up in October, people are like, it's too early, like, oh, we can't set up on Christmas Eve, people are going to be ready for it before then. But since we're not really controlling the supply chain, I mean, we can kind of choose which port things come into, but I wouldn't even know where to begin trying to, you know, set up a warehouse in Mexico and have something imported there. I have heard a lot about product moving out of China to other countries and then getting doing air quotes finished there. So maybe you put it in a box or you put a sticker on it and that's, you know, a little bit of value add to it.
And then when it ships out of Cambodia, that's a lower tariff rate than China, but I think all that is getting cracked down on now too. But yeah, there's all kinds of finagling going on, as you can imagine. Yeah, I would definitely imagine that there's a lot of finagling going on. You know, I would imagine that you've had some fairly long lasting relationships with vendors, both, you know, the factories in China and the importers in the US.
Your parents were involved in this business. You know, there's a long timeline. Do you think that your relationship with vendors is changing at all? Like, has it been a contentious relationship at all?
Do you feel like everybody's kind of trying to work together to model through this as best we can, you know, nothing unites like the common enemy of tariffs? Right. Yeah. I think it probably brings to light the people who you know are kind of on your side working with you and then you feel the ones you feel like maybe taking advantage where no one else is raising prices yet or you kind of know how much what they're being terrified when it comes in, but they're trying to charge more than that.
So, you know, what's the saying, never waste a good crisis? I think there's a lot of that going on as well. And when you can kind of feel that you go, you know, maybe that relationship isn't as strong as we thought it was. And then the bigger vendors that we have that we do more business with, they've been more willing to work with us to try to absorb a little more than maybe they would for a smaller retailer.
So that always makes you feel good. But it's been survival kind of. It feels like lately, especially like this latest round. The tariffs have been, I told you, it's my pet pee for everyone to call it a pause when there's still very, very real tariffs going on.
I'll be way down from the triple digit. But now we're starting to run into the problem of getting it here in time, to your point. If we had that month where nothing was shipping and factories were looking elsewhere around the world to see what they could produce for other countries that weren't going to tear up them, some of that production time is just lost forever, kind of, you know, and it's starting to come back. Factories are ramping up.
But, you know, if we don't get our Christmas trees until December, then that's not going to be very good for business. So, us being in a Christmas, actual Christmas store, it's even more pronounced. But most retailers are making their year in the fourth quarter, even if it's not Christmas-related merchandise. Or they're feeling that pent as well.
Yeah, absolutely. I mean, we've seen a wide range of vendors, you know, including, you know, companies like Mattel's to spending their earnings guidance because they're like, well, we have no clue. We don't know when things are going to be here, how much they're all going to be. So, you know, hopefully Poppy's not asking for a Barbie dream house for Christmas this year.
It might be- Not 30. Two is okay, but not 30. Yes, that's true. That's very, very, very true.
So, you know, we had one round of this kind of trade war tariff, especially with China in 2018 during Trump's first administration. And as you mentioned, there was some kind of moving around supply chains and diversifying manufacturing. Do you think that it's reasonable to expect massive shifts in production for Christmas or for outdoor furniture? Like, are we going to start manufacturing any of the stuff in the U.S.?
Not much, I would say. And I don't know that we really want to be with a lot of it. Do we want to be making a $5 ornament that's getting- it's still less expensive to hand-paint a lot of these than spin up a piece of equipment that can do it. But stuff like Wicher that's woven, it's actually like an old ancient kind of weaving technique that we just don't have the specialty for here.
So, rug weaving is big in India and other parts of Asia. So, I think that'll predominantly stay there for the hand-woven stuff. I think it would probably move to a different country before it would move to the U.S. And maybe those TVs aren't going to be $200 anymore.
They're going to be $2,000 if they do move here. So, yeah, just a big shift, which is what this administration, I think, is looking for. I think it'll take longer to happen. You know, you can't just move all that production to another country within a year.
So, outdoor furniture manufacturers that have moved to other Asian countries have found it very, very difficult to get the equipment moved or rebuilt in most of the cases, trying to want them to take the equipment with them, the government won't. So, they have to revive that and then train a new workforce too, which of course is always the challenge here and everywhere in the world. Yeah, that all sounds expensive and just like a logistical nightmare, which always, it makes me wonder like, what is the ultimate goal of this administration as it relates to tariffs? You know, if we cannot objectively diversify these supply chains, then what are we doing?
What is the plan here? We are probably not going to have this new industry of Wicher weavers. Anytime. Maybe that's what we need to be encouraging our kids to do is pursue the ancient art of Wicher weaving.
Right. To make 15 cents a day. Well, there's a lot of environmental implications. Like China is not the best environmental leader.
So, I mean, I get it. You know, the fentanyl, there are reasons to try to make some change, but I just wish we were going about it in kind of a more precise manner. Yeah, I totally, I empathize that with that for sure. And I think that that is kind of the big takeaway that a lot of people I've had this discussion with is, you know, maybe the outcome is not necessary.
A bad one, but the way you go about getting to that outcome can have, you know, real material and tangible impacts to a wide range of U.S. businesses, especially small and medium sized enterprises, like yours, which, you know, are kind of the backbone of the American economy and usually have a little bit less flexibility in terms of dealing with all of this compared to, you know, the mega companies. And I guess that kind of brings me to the next question around terrific exclusions. You know, we've seen the toy industry and the auto industry lobbying really hard for exclusions, but, you know, does the Christmas holiday industry have enough sway?
You know, is there a robust lobbying VC for outdoor furniture? Have you heard anything from that side? Not that I'm aware of, but we're in Charlotte, North Carolina, North Carolina is kind of a furniture hub. So while a lot of that production went overseas after, I guess it was the 90s, it all started really moving offshore, those companies are still based here in North Carolina.
And I think they still have a pretty big voice. So I think they've been lobbying. I don't know with how much success I haven't heard much. I did hear of the Dallas Market Center where a lot of our vendors are kind of headquartered in Dallas.
They were putting together a class action lawsuit to sue for damages if they're, because at 150% we're just not going to be able to import it and it's going to be a lost season. So yeah, the 30% was welcome news, but at 150% it would be the apocalypse for us. Yeah. I'm glad it is not the apocalypse.
I know that you have a number of other small business owners and retailers kind of in your network. Are you getting anything interesting from conversations with other people in the housing industry, you know, doing floors or rugs or whatever it is? The higher end is still doing okay, which is kind of always the case through these times. And a lot of, you know, if you're adding on to a house or building a new house, the lead times are long and a lot can happen in two or three years with materials and labor.
But yeah, I think that's been pretty resilient. I think a lot of it, people still have a lot of equity in their homes and all this inflation while it's hard to buy a new home or do new construction. It's all gotten more expensive. It's also raised home values.
So people are able to tap that equity to do things in the home. So yeah, that space has been pretty resilient. And then as you're kind of looking at how your spring season has gone in the world of our outdoor, are you seeing any kind of consumer trends or people trying to do any sort of trade down or how you kind of feeling about the current season? We've seen a lot of really bad consumer sentiment prints and everyone's trying to figure out like consumers are saying, we don't feel good.
We don't like high prices. But then they keep spending. You know, when are you going to stop spending or is it because the labor market is still relatively okay that we're not going to see people stop spending? Right.
Yeah. I guess over COVID, we just got these new habits of spend spend and we're just not ready to let go of them yet, right? Yeah, we were rocking along pretty well until mid April. I think around the time that the tariffs were announced, so for the last month, it's been pretty slow, I would say.
But then we just had a great Memorial Day weekend of sales. So as you say, there's still people out there and maybe they were waiting for more of a sale, maybe not necessarily trading down, but just waiting until they can get that mattress for $800 instead of $1200. You know, they're willing to spend, but maybe a little more conscientious of what they're spending on and how much they're spending. That's super consistent with our consumer team who covers retailers and consumer goods.
The concept of kind of trade down or being choosier with where people are choosing to spend their money has definitely been a theme that we've heard a lot to start this year. And I think it's probably going to remain the name of the game as we still have a lot of uncertainty on the horizon. So for Christmas this year, is it canceled? Are you reasonably confident that you're going to have a full enough retail shop to kind of satisfy the shopping season?
Yeah, we'll never cancel it. There will always be Christmas when we always talk about it like with alcohol sales are good at good times and bad times. And Christmas is kind of the same way when people are sad they want a little Christmas. They're alive.
But as you say, if we can't get the product, we don't have anything in the store for them. We're already starting to get some stuff in kind of early. I think vendors are wanting to get what they do have into people's hands so they can go ahead and get a little bit of money coming in. Yeah, it's kind of TBD.
I mean, our we order about four or five containers of Christmas trees every year that would typically get here in August or September. So hopefully they still will from what I'm hearing. They're still on track. So we'll be paying more for them, but at least they'll get here on time, at least as what I'm hearing.
So yeah, Christmas is not good. Well, I'm glad to hear that because I do love the holiday season. Do you still like the holiday season or after being in the Christmas business for this many years? Are you over it?
I feel like I was over it, but we have an almost six year old daughter now, as you said, that likes to play with your son on the playground. And since she started getting into it, it's a lot more fun for me again. So yeah, it's been fun seeing it through a child's eyes. Are you teaching her the business of supply chain logistics so that she can take over your Christmas empire someday?
Not supply chain logistics, but she did. We saw an empty storefront and she asked, you know, why is it there a store here? And I said, it's fairly sweet. We got into all that.
She decided she wants to be a landlord because you don't have to do any work. You just collect the money. You just have the building and people pay you rent. You don't have to do the work abouting the business.
I'm like, yeah, it's towards that. Yeah. She is a boss already. And I love it for sure.
Well, Michael, thank you so much for joining us to talk about retail supply chain. Small business and tariffs. I think that this has been a really interesting conversation and I wish you the best of luck trying to stock up for the Christmas season and beyond. Yep.
I'll keep you posted. Thanks for having me, Wendy. Thank you. And as always, if anyone has a follow up questions for me, you can always reach out to me on the credit sites dot com website by contacting your credit sites sales person.
And you'll just have to figure out where Michael's Christmas and outdoor furniture store is if you're ever in North Carolina and, you know, maybe buy a $7,000 sofa. That sounds like a pretty nice piece of outdoor furniture. Thank you, Michael.