With shifting tariff policies and an increasingly complex global supply chain, importing goods into the U.S. has never been more complex. And the impact of the U.S. tariffs and the end of de minimis are having a ripple effect around the globe, particularly for foreign brands hoping to do business Stateside. With costs rising, consumers getting squeezed and no end in sight, international companies are finding ways to adjust to the new normal.
UK-based Refined Networks was born out of an equally turbulent time. The cross-border ecommerce experts launched to help overseas fashion brands solve the myriad challenges related to selling in the UK during Brexit. In February, it launched a U.S. division to facilitate sales for British brands in America, only find itself in the middle of another massive disruption. Since then, the company has spent the last nine months navigating costs, logistics and uncertainty in an already challenging retail market.
Despite the timing, Fiona Chittick, vice president of North America and business development, said there’s still an appetite for the U.S. market. “The UK market is really challenging at the moment, with a cost of living crisis and platforms trying to go really premium, so a lot of the UK brands are really looking for the next opportunity, and the U.S. has always been the driver,” she said. “A lot of UK brands have felt, if we can make it in America, we can make it.”
Here, Chittick shares how consumers are reacting to higher retail prices, how the trade war is impacting what’s on the racks and why the marketplace model is a winner for both brands and retailers alike in an otherwise tight retail market.
CC: What are the top concerns that brands are coming to you with these days?
FC: It’s settled down slightly, but I would say earlier this year was definitely the uncertainty and things like, ‘Are my products going to get stuck at customs?’ It’s hard knowing what country is going to be next on the list. Because with China, being transparent, everyone expected it to be bad. India came out of left field, and India specializes in things. So it’s not like you can just move your production elsewhere. And we’ve been encouraging brands not to panic over it in terms of, don’t suddenly move all your production to another country, because that country might be next on the list.
CC: What does 20% tariff on Vietnam, for instance, actually look like at retail?
FC: So it depends on how you’re importing it into the U.S. For us, brands are importing from the UK, for example, into our warehouse in Dallas, Texas. They’re paying those tariffs on the brand cost price. So as much as a tariff is obviously a big percent, it’s less of a big percent when you’re basing it on your cost price. However, if you have all your stock sitting in the UK, and someone orders it on your own website, and you’re shipping it, they’ve bought it at the retail price, so therefore that tariff is on the retail price. So that’s where we are encouraging more localized stock in the U.S. We’re also encouraging people to ship directly from factory into the U.S., rather than going via their French warehouse or their UK warehouse to really cut those costs as well. But from a UK perspective, we have brands that are increasing their prices to 25% [higher than UK prices], which has kind of always been standard. We now have some brands that are increasing their prices to 60% – 70% higher than their UK prices.
CC: How is the consumer reacting?
FC: There are initial levels of uncertainty around ‘Can I put my prices up? Will the customers still shop?’ But what we have found, having launched over 30 brands, is everyone has increased their prices, but the customer is still shopping, especially with the brands that we work with, it’s closer to probably like the $250 mark. And what we find is if a customer is wanting to spend $250 on a dress, she’ll probably spend $270 or $280. Where the real struggle is is if you’re trying to sell $50 shoes.
We don’t work closely with them, but I can imagine a company like WalMart or Target is really struggling at the moment, because if someone’s willing to spend $20 on their white T-shirts and suddenly that’s $25, that’s a big uplift for that customer. This is having such a ripple effect on so many different aspects of the industry, even if the tariffs went away, people aren’t going to put their retail prices down.
I’ve been speaking to a lot of my brands about if you’re going to increase your prices, that’s absolutely fine, but you need to make sure you have that point of difference. You can’t just be selling a plain black dress for $50 extra than what you were previously. It has to be that story behind it. And I think a lot of what we’re pushing brands to say is, you’re a UK-designed brand. Make sure there’s that point of difference, because if the customer is going to spend the money, they’re going to want to realize why. We’ve had some brands that have said that they don’t feel comfortable putting up their prices as much as they probably should be, because they view launching in the U.S. as more of a marketing/PR perspective. There’s actually a lot of brands that are like, ‘we’d rather sell more items and create more customers,’ but not every brand is in the position to be able to do that.
Q: What are some challenges with having factories ship directly to your warehouse in Dallas?
FC: It takes a bit of persuasion from the factories, because you’re having to encourage the factories to do split POs, so especially if you produce in 10 different factories, that’s 10 different factories that you’re having to ask them to split their orders. Overall, we have managed to do it for quite a lot of our brands. I think the factories are wanting to work closely with people to hope that they don’t lose their business.
Where you have an issue is if you’re creating a dress and you’re shipping 1,000 units of that dress to the UK, to ask that factory to pick out 50 of those units and send it directly to the U.S. can be quite a hard conversation. Overall, it’s saving brands a huge amount of money, because they’re not then paying VAT to bring it into the UK. They’re not paying those duties, and they’re not paying their warehouse in the UK to unpack all those items and then ship them back out again.
CC: With all of these challenges, from costs to logistics, how is this impacting assortments?
FC: Some of our brands, when China was definitely at the highest of the list, they were saying, ‘Well, we produce 50% in China and 50% elsewhere. We’ll just send our elsewhere product into the U.S. ‘So from a customer perspective, it’s a bit of a disaster all over. Everyone’s putting up their prices, whether the tariffs are going up in their country or not, because they want to cover their back. But then they’re also getting a lot less choice, because people are choosing to not send their China product, for example, or India product [to the U.S.].
What we’re also finding is we were initially speaking to a brand before all the tariffs were happening, they wanted to ship 10,000 units to us. That brand might now only ship 2,000 units to avoid that upfront tariff, and then wait to see how it goes. So, people are taking a lot less risk.
In fashion the last couple of years people have definitely been reducing their risk. In general, the fashion industry had obviously a really hard time during Covid. Those brands that did survive had a lot less orders, but also if you’re ordering less units, the higher the cost price is as well. So that’s also where brands are struggling. We work with quite a lot of small brands, and they might be ordering 300 units of a dress. To reduce that any more, the factories basically don’t bother.
CC: What are the conversations that you’re having on the retail side?
FC: It’s challenging all over. They’re seeing prices increase across the board.
For us, we’re quite lucky that we’re launching a lot of new brands into the U.S. that the customer doesn’t know the price point. They’re not used to buying it at $200 and then it’s $250, and I think that’s where Nordstrom, for example, they’re going to be really struggling with their wholesale business. So Nordstrom in the last two years, has onboarded 600 brands onto their marketplace because they’re not having to put the money up front. Whereas, if they’re placing buys and everyone is suddenly increasing all their prices, their wholesale price goes up as well.
So they’ve got more room for marketplace brands, but from a wholesale perspective, from a cash flow perspective, department stores, like Saks and Neiman Marcus, they’ve been having a terrible time prior to this. Now they’re going to be having a way harder time, because cost of goods are just going to go up.
CC: Beyond marketplaces, how are you seeing demand right now?
FC: Our goal is to be on every online retailer in the U.S. However, when you take out Saks, Neiman Marcus, Bergdorf, people like Dillard’s aren’t really onboarding new brands at the moment. Then you have like Revolve and Anthropologie, but they’re not going to shift a huge amount of stock the same way Nordstrom does. If Nordstrom says no to a brand, we basically say it’s not a huge opportunity in the U.S., which is really challenging. Out of Nordstrom, Macy’s and Bloomingdale’s, Nordstrom is our strongest in terms of the amount of stock that we’re able to sell.
One thing that I’m also doing at the moment is building a portfolio of outlet partners. Because if you’re shipping your product from the UK to the U.S., and it doesn’t all sell on Nordstrom, the last thing you want to do is then take that one year old product back to the UK that you’ve already paid the tariffs on. So it’s things like Nordstrom Rack, and the business I used to work at got acquired by Rue La La/Gilt, so we’re looking to work with them.
CC: When I saw you speaking at Coterie trade show in September, you and the other panelists were all very positive about business this year. Beyond tariffs, what’s actually going well right now?
FC: I think for me personally, the biggest shift in the U.S. has been this movement away from wholesale. So my biggest challenge when I used to work at the brands used to be one season Nordstrom is buying 50 styles for 25 doors. The next season, they’re buying 12 styles for four doors. And there was kind of a lack of consistency. With the marketplace model, the brand has a lot more control. The brand is able to showcase a lot more of their products on the website. It’s also less risk on Nordstrom. They’re not buying the stock. They’re also not even holding the stock in their warehouse. The only risk is that they’ve got it on their website.
When you go to a lot of the department stores, it’s a bit sad when you walk around them now, in terms of the lack of customers, the lack of products, I think there’s that big online shift. So for a business like ours, we’re focused on being able to show more product online without the restraints.
I would say the customer is also definitely demanding newness in terms of new brands and new product categories and things like that, which opens up the doors for a lot of new brands to do well in the U.S. I wouldn’t say that overall the U.S. retail industry is doing incredibly well, but I think considering the circumstances, our sales have been way higher than we thought they were going to be in the U.S.
CC: In terms of the U.S. consumer, how do you advise your brands about our taste and how we shop?
FC: We’re selling more dresses than anything. We’re really struggling on menswear. We’ve launched some really strong menswear brands. They just haven’t been selling. I don’t think they’re scrolling through the Nordstrom app every day to shop like a woman might do.
What we have done is we’ve done a heat map of where the sales are coming from. And it’s still very traditional, New York, Florida, California. We have some Colorado, for example, we are selling quite a lot there. But overall, it’s still the very traditional, cosmopolitan cities that are selling. That’s where the shopper is, and I wonder if it is because the more suburban shopper is still going to their local mall on a Saturday.
