Realities of Tariffs

Perspective from one small business

This is a post from a small business owner who runs a game shop that I think spells out explicitly what tariffs will do to consumers and businesses. Please read and share.

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Alright, here's the wall of text that I said I wouldn't drop.

For some rough math:

Ludington's store does in the neighborhood of $270k~ a year in revenue/sales.

$270k in sales

We have a, roughly, 55% cost-of-goods. This is an average. Some things are a much higher, some things are much lower, but this about splits the difference and will work well for this exercise.

$270k x 55% Cost of Goods = $147k for product to sell in the store

That works out to around $150k of that $270k being spent just to buy the things and does not include operating expenses and overhead. This is how much it costs us just to get the stuff and put it on the shelf.

Probably about 2/3 of that has an origin in China, between newly published games, video game accessories, and the like. So, again using the nice round numbers, that's about $100k wholesale that we spend on stuff with origins in China.

$270k x 55% COGS x 2/3 China Origin = $100k wholesale cost impacted by China tariffs

Now, China's tariffs are cumulative; we went from a 10% to a 20% jump already. As of yesterday, we're adding ANOTHER 34% on top of that. So a grand total of 54% total tarifs. But, we'll talk the EXTRA amount, so 44% NEW tarrifs.

What WAS $100k then (or $90k + $10k existing tariffs), roughly, becomes $140k in expenditure ($90k + ~$50k in tariffs). Almost eclipsing our total total spend.

($270k x 55% x 2/3) + ($90k * 44% in new tariffs) = $140k wholesale cost for 2/3 of inventory

Now, here's our options:

- Eat the tariff. We can't do that; punting $40k down the drain is more than our entire mortgage on the store buildings. Would YOU flush a whole year's house payment down the toilet? No? Neither can we, and neither will any small business owner.

- Increase the price by the tariff. A $10 thing costs us around $5.50 on a 55% COGs, which will now cost us $7.92. So we'd charge $12.42, adding the $2.42 on. This offsets the tariffs, but we're keeping less.

- Increase prices commensurately. That $10 thing becomes $14. This keeps a rough equilibrium in what we keep, but it puts things further out of reach of the customer.

Here's some of the reality:

- Incomes are not keeping pace. In point of note, we're seeing tens of thousands of people fired. Ludington and Marquette, Michigan lost 14 forestry techs and seasonal hiring is frozen, for instance.

- Costs are going up for EVERYONE. Not just us. All of our customers are spending more, and spending more on necessities.

Consequently, we are competing for fewer dollars with higher costs across the board.

We're also a discretionary income field; no one NEEDS what we sell, despite arguments to the otherwise about the value of our product and services to the community, mental health and well being, etc. You will survive without the board game on our shelf or without the new set of dice; you won't make it without food in the cupboard. When faced with a choice between "this makes me happy" and "this keeps me alive," I expect to be on the losing end of that equation, and I am actually OK with that, I hope you make that choice and take care of yourself and your loved ones.

This is, believe it or not, not directly a political post. This is math.

Last spring, I could buy given products for $X. After the 5th, I'll be paying upwards of an additional 44% on $X. My customer base will be paying an additional 10-44% on $X for everything in their life, thereby having 10-44% less to spend with me. My income will not grow to match $X+44%, it will in fact shrink. That is unavoidable.

We will be forced to make decisions about what we do, what we stock, and who we can support. These decisions will be multiplied by tens of thousands of small retailers like myself, and ripple up the chain, impacting distribution houses, publishing houses, and creators.

Will the field survive? Yes, I'm sure "we" collectively will. People like to be entertained. Will WE survive, for any one instance of "we"? Hard to say. I hope so. In our case, we celebrate 18 years of business, two successful locations, two families with two mortgages and stakes in our community, and a network of people we support. Pluck this string and a number of other threads start to unravel, and that's true of any one of us.

Stan Lee remarked before that he never considered what he did to be consequential; he just wrote for the funny papers. Until he realized how much his work meant to people, and the whole interconnected web that work supported. And those of us in the game field? We're alike. We might sell silly games and talk about dragons and electric mice with little kids, but we're woven in to people's lives in innumerable ways. I hope we can continue to be.

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You can find the original post on Facebook from Nate Peterson here. Their store is Backstage Hobbies & Games in Ludington and Marquette, Michigan.