According to a recent press release, the National Retail Federation projects that retail sales may increase as much as 4.2 percent over last year. And while that may seem like good news on the surface, there is much to be wary about, thanks to new tariffs set to be enacted in December, in addition to those already in place on more than  5,745 Chinese products. The reason is simple: Despite the government's best public relations efforts to have us all believing that only China and big businesses engaged in offshore production will pay the price, the reality is actually quite different. Small businesses and end consumers will likely find themselves coming up short this holiday season. 

Big-box retailers are very dependent--far too dependent, in fact--on Chinese production sources. And even if big-box retailers were interested in reducing that dependency, there is no way to do so in time for the holiday season, or even the foreseeable future, because the business disruption would be too great. The Chinese know this, and while they may have to engage in some uncomfortable conversations, and even make small overtures to reduce prices to offset tariffs in the name of "partnership" with their U.S. counterparts, business will ultimately continue as usual. Large retailers will merely raise their prices to maintain profit margins, banking on the idea that "job growth and higher wages mean there's more money in families' pockets, so we see both the willingness and ability to spend this holiday season," as NRF chief economist Jack Kleinhenz notes. And big-box retailers will have carte blanche to do so, because the news media has essentially marketed the idea that prices will increase on their behalf, thus preparing consumers to expect to pay more. All those hard-won gains in salary will have to be forked over, and ultimately, returned right back to the coffers of big-box retailers if consumers want to shop this yuletide season.

At the same time, the largest retailers will use their long reach to continue to negotiate behind the scenes to obtain exemptions from the United States Trade Representative on the goods they sell, a practice they have had considerable success with since the institution of the Trump tariffs. However, caveat emptor, even when big-box retailers win the concessions they want, they'll still use the opportunity to raise prices, adding to their bottom line and forcing the end consumer to pay the price (to the tune of an estimated $460 per family this year, according to economists Kirill Borusyak at University College London and Xavier Jaravel at the London School of Economics, as recently cited in The New York Times). Why? Because they would be foolish to not capitalize on all that free press surrounding price increases and disappoint their shareholders who are always demanding more profits and better earnings.

Small businesses will suffer too, because those whose products fall under new tariff regulations will most likely choose between two responses to the tariffs: Keep prices the same and lose money but potentially win market share, or raise prices to compensate for the increased tariffs and risk losing customers to the big-box retailers who can afford, given their size, to run temporary holiday promotions and other marketing schemes to entice hard-hit consumers to spend with them. 

So what can small businesses do to survive this holiday season? Make sure to communicate ferociously on what sets them apart from big-box retailers--their knowledge, their customer service, and their mission. Consumers need to know that shopping at a local toy store will net them access to the same products and more, but with better guidance on which toys are the best for which children. Consumers need to know that their experience with small retailers will be white glove instead of the free-for-all they'll find at the big-box stores. And, most important, consumers need to know that choosing to shop locally at small businesses keeps those retailers in existence, keeps their neighbors employed, and keeps scorched-earth economics out of their communities.   

Published on: Oct 11, 2019
The opinions expressed here by Inc.com columnists are their own, not those of Inc.com.