Customerland
Customerland is a podcast about …. Customers. How to get more of them. How to keep them. What makes them tick. We talk to the experts, the technologies and occasionally, actual people – you know, customers – to find out what they’re all about.So if you’re a CX pro, a loyalty marketer, a brand owner, an agency planner … if you’re a CRM & personalization geek, if you’re a customer service / CSAT / NPS nerd – you finally have a home.
Customerland
KPMG: Tariff Impacts and Navigating Retail Uncertainty
Tariffs have become a hot-button issue that's reshaping the retail landscape in ways few could have predicted. In this revealing conversation with Duleep Rodrigo, KPMG US Consumer and Retail Sector Leader, we cut through the noise to understand how these economic policy decisions impact both businesses and everyday consumers.
Unlike typical economic downturns where consumer behavior follows predictable patterns, tariff situations create a uniquely dynamic environment. "The tariff landscape can shift in a day," making strategic planning particularly challenging for retailers who source products globally. Rodrigo unpacks how companies navigate this complexity, explaining why some retailers face minimal disruption while others scramble to rethink entire supply chains.
The conversation takes a fascinating turn when examining consumer loyalty during economic uncertainty. Our data reveals that while consumers initially stick with trusted brands during disruptions, they gradually prioritize value as situations persist. "Price and quality are two of the key variables that continue to come up," Rodrigo notes, though the balance between them shifts depending on product category. For durable goods like electronics, quality often trumps price, while convenience emerges as a powerful third factor influencing purchase decisions.
Perhaps most surprising is Rodrigo's revelation that "most senior executives are not panicking" despite media narratives suggesting otherwise. Instead, forward-thinking retailers are methodically modeling tariff implications, exploring sourcing alternatives, and developing nuanced pricing strategies by channel and category. The message is clear: while tariffs create legitimate challenges, they also present opportunities for agile companies with strategic vision. Listen now to gain insights that could help your business navigate these uncertain economic waters.
But it certainly is fairly complicated because retailers today source from multiple different geographies and locations. Some products are manufactured in-country. So when we think about the impact of tariffs and how that gets passed along and how that gets factored into pricing, we are in an environment where the consumer is highly sensitive to price.
Speaker 2:Today on Customer Land, a special edition, we're talking to Dilip Rodrigo, who is KPMG US consumer and retail sector leader, about a topic that's on maybe not everybody's minds, but certainly a huge majority of people in business right now, and that is tariffs. So, Dilip, thank you for joining me. I really appreciate this. Well, Mike, thanks for having me. Happy to be here. There's a lot to say and in preparation for this conversation, I think I spent most of the time just crossing off places to not go, because we don't have that kind of time here. But let's focus in on the effects of these tariffs the ones that may not be in effect for long or may in fact come back to being in effect, and how the market specifically and let's just define that as retailers are currently kind of navigating this. What's your view?
Speaker 1:Mike, you put it well. This is an evolving topic and sometimes continues to figure out how best to navigate a lot of the uncertainty that comes along with tariffs. But it certainly is fairly complicated because retailers today source from multiple different geographies and locations. Some products are manufactured in-country and so when we think about the impact of tariffs and how that gets passed along and how that gets factored into pricing and how that gets passed needle and how they navigate this tariff topic, so I'll leave it at that. At a high level. You know this is really complex to navigate through and different retailers, depending on the product, is going to have to look at each of their facts and circumstances very differently.
Speaker 2:I was talking with somebody I think it was just yesterday, as a matter of fact about the different scenario that this tariffs environment presents from most other consumer price pressure situations in recent past, and trying to just discuss okay, how do we think consumers are going to respond to this? And I think there's a fairly predictable pattern of behavior when there's an economic downturn and when there's price pressures or whatever happens, whatever the cause may be, you can see consumers pulling back, you can see them switching brands, you can see them kind of shifting their values for those kinds of things. But this is much more dynamic. This, as we've both alluded to here. The scenario, the whole tariff landscape, can shift in a day and um, and so what I think at the end of that conversation that meant to me was the models that we might've looked at previously for indicators as to how consumers might respond and and thus retailers respond to consumers don't really seem to apply here because it's so dynamic. What are your thoughts?
Speaker 1:You're exactly right. Consumers generally try to anticipate. Where there is room to anticipate, they try to adjust. Sometimes consumers may purchase products early and stock them if they think you're about to run out of product, whether that's toilet paper or any other non-perishable item that you could retain Whereas in this situation, especially as it relates to grocery items, it's really tough to do that.
Speaker 1:As it relates to grocery items, it's really tough to do that, and you know grocery supply chains. Let's just take that particular category for a second. Grocery supply chains are fairly lean and they prices correspond to that volatility and availability of product and demand for the product. So you would certainly see in this scenario certain products. The likelihood is that those grocery items, food items will fluctuate as purchasing decisions are being made by retailers and they will have to start absorbing those costs.
Speaker 1:Now for other products, whether that's electronics, apparel goods and other home goods, there could be a little bit more of a lag time, depending on what's in inventory, what components of that product has been manufactured from, an impacted location or geography. Is it covered under USMCA rules, for example, in this current situation, or not? So there's a lot of other factors that go into product costs and then obviously then pricing that ultimately the consumer pays. I was just talking to a retailer this afternoon that had very little manufacturing of products that were coming from China, Mexico, Canada, Right, so in that situation their impact and exposure to at least the current landscape of tariffs is fairly low, to at least the current landscape of tariffs is fairly low. But there's again there's quite a number of other retailers that are not going to be in that fortunate situation. They will certainly be impacted.
Speaker 2:Yeah, it's sounding like. If you can read between the lines of what the press releases and what they're saying in public, it sounds to be something akin to deep panic. So I don't envy them because it's quite unknown. Nobody here, nobody that I've spoken with yet and I'm sure you'd have access to people deeper inside the decision-making than I would but nobody I have spoken with or heard of seems to have any indicator of how this will ultimately kind of flesh out. So it's kind of just like brace yourself at the moment and, honestly, that's not a bad message for consumers as well. I wanted to just get your take on a couple of things on a consumer side. This is that same conversation.
Speaker 2:Recently we were looking at the data of how consumers responded to. In this case it was the pandemic. Yeah, really great kind of you know petri dish scenario for just understanding these kinds of behaviors and strange economies. And in this case the conversation had to do with brand loyalty, and do consumers generally stick with brands they're loyal to in these kinds of situations? And the data says kind of not. Of course there are people who are like diehard brand loyalists and no matter what happens, they're going down with that ship, so to speak, but so many others, the lion's share of people in this particular report, like 90% switched over to values that had to do with value and you know they defined it in certain ways. But in your view, when you're looking at how consumers are responding, you know, again, people define value in many, many different ways. But what are the? What are the shifts that you're seeing or that you could even offer as a prediction, if I can put you in that situation?
Speaker 1:Sure, and let me maybe touch on what you just shared about consumer behavior. During the pandemic, you know, there was some behavior by consumers where, for certain products, they did stick with what I would say trusted brands. Because when there is a very high degree of uncertainty about, especially if you're going to consume something, whether they're going to basically put something in your body, whether that's a drug or something, else you would stick with known and trusted products and so the brand holds up pretty well.
Speaker 1:But as time goes on you're very willing to move away from that trusted brand to more value brands, because your risk tolerance certainly, you know, diminishes over that period of time. And we certainly saw that of trusted products, whether it was, if you think about Clorox wipes or sanitizers or any other you know brand that you may have initially have trusted more. You would then move, you know. Then you went and looked at value just differently. So there's certainly very clear indications of value today.
Speaker 1:As we look at, you know, at least from our surveys, price and quality are two of the key variables that continue to come up as factors that consumers look at. So if you can get a higher quality or similar quality product at a lower price, the consumer is at least indicating that they are willing to consider and sometimes shift into another brand. So those are the two variables that continue to stand out and in some cases quality does surpass sort of that price equation. So you're willing to pay a little bit more on quality. And this holds true especially for like electronics, where the there's a little bit more longevity and useful life of the product, where you may want to pay a little bit more because you want that quality of the product, because you want to hold on to that product for longer and not replace it right away. So in those instances, quality matters.
Speaker 1:And I would say the third leg that consumers continue to look at when purchasing product and this usually comes when we look at product channel, whether you're going to go purchase this product online versus offline, brick and mortar, um is that they look convenience, and convenience can drive a significant factor in terms of values. Okay, now I can get this today, I can get this within the 20, the next 24 hours, so I might be willing to sacrifice price a little bit for convenience in those instances yeah, you bring up a couple of really good qualifying points here too, and my apologies for making such a broad brush stroke on the data.
Speaker 2:But you're right, if it's a product that demands a certain amount of trust, that you really have to believe that the manufacturers have your back, have their quality standards up to par, you're much more likely to remain loyal to that brand out of a sense of self-preservation for you and your family.
Speaker 2:The other thing I think that's really, really important that you bring up here is that the brand switching the brand loyalty that happened and thank you for bringing this up Wasn't an overnight thing when the pandemic hit, and I think you'll see the same kinds of parallels here. When the pandemic hit, it wasn't like everybody went well, that's it. I'm not a loyal you know whatever Starbucks, patagonia, nike fan. I'm going elsewhere. It was a gradual movement. When the situation persisted, when they saw additional brands that conveyed the same kinds of values they were looking for, they became willing to switch over time, and that's a really important point.
Speaker 2:So and I think you know I'm editorializing here and I'd much rather you do this frankly. But I think that gives brands and retailers a chance to kind of survey the landscape, understand what's happening, adjust their product mix and maybe their messaging accordingly. Just my take.
Speaker 1:You're right and you'll find that brands are trying to cater to the consumer in different ways by introducing private label brands at a discounted price. Brands are looking at packaging much more closely to see, you know, what used to be a family pack maybe a value pack today. So sizing and portion sizing might be different in terms of how they look at packaging a certain product to accommodate the customer. They might be looking at introducing or partnering with another brand or a celebrity to drive traffic and to get endorsements. So, yes, the brands and retailers are looking at how do they bring value, how do they continue to make sure that their message is resonating with the consumer and can they differentiate very clearly the value that the product is bringing to the consumer through marketing and promotions?
Speaker 2:And I think, just to put a finer point on that is in my view anyway is that these kinds of disruptions, whereas they are disruptive by definition, they do tend to cause some short-term pain. It also creates opportunity for people who have the vision and kind of agility to respond to them. So yeah, at this point the news is filled with people who are panicking, but I feel like I'd love to hear your thoughts on this. I feel like that's I think it's universal now because this is a fresh wound, but I think that that will kind of stabilize and you'll see people companies finding ways to leverage these new gaps in confidence, the gaps in supply chain, to make better business.
Speaker 1:You're right, mike, I am most of the conversations I'm having with senior executives. They are not overall panicking and trying to, you know, make hasty decisions as it relates to this. You know the guidance and the perspectives that they offer are to stay focused in long-term strategy. Most of any decisions you make around supply chain take months, if not years, to make, so these are not things you can easily switch. And then you just don't want to be switching around your sourcing strategy from month to month or quarter to quarter, so that's really impossible. But there are things you might be able to do in terms of short-term strategies really understanding your sourcing landscape, understanding where you have ability to control your cost equation and truly understanding sort of what leverage and margins you want to have within a certain product category to be able to stay competitive and to be in front of the consumer.
Speaker 2:I completely agree. I completely agree. One final ask of you while we're together is if you had the giant bullhorn and were able to stand on top of the mountain so that every retailer and brand was listening. If you had one message you'd like to broadcast, what would it be?
Speaker 1:Well, thanks again for the opportunity. Yes, I would say there are a number of things retailers can do in the short term, midterm and long term, as they're thinking through this In the short term, midterm and long term. As they're thinking through this In the short term, you really need to model your tariff implications and really understand what the true impact is, both on existing tariffs, potential retaliatory tariffs that might come through, and model your exposure. So get a good, solid understanding of what that looks like. We certainly see some retailers and companies still trying to really understand that because it is complex and even with the current, the way the administration is moving through some of the regulations, it could continue to be complex. So having your arms around that is going to be critical.
Speaker 1:Then you need to start looking at optionality. What are your sourcing strategies? Where can you drive efficiency, leverage decisions that could impact your supply chain in a proactive manner? What do you need to do from a packaging standpoint, from a promotion standpoint, around your product mix? And then, lastly, you also need to look at pricing. Look at pricing so you know pricing scenario. Planning around pricing by channel, by mix, by category, is going to be really important so that you are. You're being competitive and that you're trying to, you know, maintain and retain your loyal customers.
Speaker 2:At the end of the day, We'll take that and thank you, I'm going to consider that guidance straight from KPMG today. Ghalib, thank you so much for your time today. I really appreciate this. I know this was very last minute and a bit of a scramble to set this up, but it's valuable. It's incredibly timely.
Speaker 1:Thanks again, Mike. I really appreciate being here and thanks for taking time to catch up with me.
