SONARAY Position on Tariffs
Much of the news in the lighting industry has been dominated by talks and actions by some on the tariffs that have been put in place on Chinese-manufactured goods being imported into the U.S. Since China is home to much of the lighting industry in terms of manufacturing it stands to reason that lighting has been particularly affected by the tariffs.
At first the tariffs were 10% but then they were raised to 25% when talks broke off between the U.S. and China. Some manufacturers have passed along price increases at every turn in multiple steps. Others have looked for ways to skirt the tariffs by moving operations or even trying to import products under harmonized tariff codes that might not be subject to the 25% increase.
In particular we have seen select manufacturers use the tariffs for what we might consider an additional way to increase profits and margin. For example, some have passed the increase along on selling price versus their acquisition price. As an example of how this works, let’s say that Manufacturer A produces a fixture that costs $100 to acquire/make and sells that same fixture for $200. Now let’s add a 25% tariff to that fixture. This would raise the acquisition cost to $125. It might be reasonable for Manufacturer A to raise the selling price to $225 to “pass along” the extra burden of the tariff, but what we have seen is that in more than a few instances, the tariff is added at a percentage rate on the selling price of the unit. In this instance, Manufacturer A might decide to add 25% to the $200 selling price. So now, instead of selling a fixture for $225 that costs $125 and grossing the same $100 on a sale, the manufacturer might sell at $250 for a fixture that costs $125. In essence this is a profit and margin-enhancer for the manufacturer since they are now making additional margin dollars. While this is certainly the prerogative of the company and is certainly subject to what the market will bear, it is also a way to masque to some a way to make additional monies and blame increases on tariffs.
SONARAY has, for the most part, kept our pricing intact largely by looking for factory cost reductions in manufacturing, working with our suppliers and freight movers to make sure that our costs are as low as possible. While we have had a few increases on select fixtures, we have for the very largest part, kept our pricing intact. We believe this is simply good business and a fair way to conduct business.
We remain optimistic that an agreement will soon be reached on trade talks, however we try our best to not worry about things outside our control, but simply manage our business by doing the best job with factors within our control.