Tariffs Bring Small Businesses Tough Choices for the Holidays

They can either pay high levies, or find new suppliers at an even steeper cost, Reuters reported Wednesday (Nov. 26).

Among these retailers is Matt Hassett, founder of New York-based sleep wellness brand Loftie, which sources its sunrise lamps and phone-free alarm clocks from China.

“It’s been very difficult to prepare. We have sold down to extremely low stock levels – we probably have about 10% of the inventory we need,” he told Reuters.

When the U.S. threatened tariffs as high as 180% on Chinese goods in mid-April, Hassett considered shifting production to Thailand, where duties were lower.

But when the rates on China were later reduced, the alternative factories with 20% higher production costs ended up being more expensive than the tariffs. Hassett ultimately stayed with his Chinese manufacturer. Still, Reuters added, the scramble delayed orders, leaving him dangerously low on stock ahead of a time of year that traditionally accounts for a third of U.S. retailers’ annual profits.

In all, operating margins for small retailers with total assets under $50 million have plummeted to negative 20.7%, Reuters said, citing data from business analytics provider RapidRatings. This has left 36% of them at high risk of bankruptcy, three times the figure for large retailers.

“For the first time since the pandemic, average profit has dipped into negative territory… disproportionately impacting smaller companies that lack the scale and resources to absorb these pressures,” said James Gellert, executive chairman of RapidRatings.

In other tariff-related news, PYMNTS wrote last week about the effect of the duties on middle market companies — those with annual revenues of $100 million to $1 billion — which have begun operating under the assumption that tariffs will define the landscape for years and thus adjusting their portfolios, forecasting models and supply strategies accordingly.

Research by PYMNTS Intelligence, from the report “Profit Slips, Policy Shifts: Product Leaders Navigate the Crossfire,” found that 90% of goods firms increase prices over the past year, yet 75% still saw profit margins dip as costs climbed and demand weakened.

“The report presents a picture of companies that have reached the limits of price hikes. Goods and services firms alike say the past year brought weaker demand from business clients and consumers,” PYMNTS wrote.

“That leaves product leaders little room to pass through higher costs tied to tariffs or broader macroeconomic volatility. Instead, they are turning inward, reworking existing products to cut material or operational costs or removing items from shelves entirely.”