Amid rising uncertainty, U.S. importers have been intensifying efforts to safeguard their supply chains to tackle challenges from impending tariffs under the Trump administration, potential International Longshoremen’s Association (ILA) port strikes, and disruptions from the Chinese New Year.
Stockpiling: A Risky Defensive Move
A wave of stockpiling has been underway as businesses prepare for the expected 60% tariffs on Chinese imports promised by the Trump administration.
This scenario is reminiscent of the trade maneuvers seen during the first phase of Trump’s trade war. U.S. businesses have rushed to secure goods before the tariff implementation date, reflecting a playbook that includes inventory build-up and price adjustments.
For instance, Bare Botanics reported to The Wall Street Journal that it had ordered $50,000 worth of inventory, enough to potentially weather several months of high tariffs.
"The biggest consideration is: Do we stay in China?" Jason Junod, co-founder of Bare Botanics, said.
Retailers, notably Target, have also been reactive to market conditions. However, unlike their counterparts, who began stockpiling in June when freight rates were lower, Target waited until August/September. This timing forced them to absorb higher shipping costs, which would only be a portion of why the retailer recorded its biggest earnings miss in two years for Q3.
According to customs data from Panjiva, Walmart imported 25,000 shipments valued at $1.3 billion from May 31 to August 31. Target imported 40,000 shipments valued at $2.5 billion during the same time frame.
Target's inventory missteps echo its 2022 struggles when overestimating demand led to surplus inventory and forced heavy discounting to clear shelves. Target bet heavily on discretionary goods but misread consumer price sensitivity in a challenging economic environment.
In contrast, Walmart’s leaner inventory and focus on value have driven market share gains, even among higher-income shoppers.
The Changing Face of E-commerce
Over the past five years, the e-commerce landscape has undergone a significant transformation, culminating in the emergence of the "Creator Economy" and platforms like TikTok Shop. This shift has reshaped how consumers discover and purchase products, leaving traditional retailers struggling to keep pace.
Retail Inventory Distortion
Legacy retailers are struggling to keep up with newer, more agile e-commerce platforms regarding trend identification and response.
Last year, the IHL Group published a report on tracking retail inventory distortion and the actual cost of out-of-stocks and overstocks for the past 17 years. IHL had estimated a whopping total of $1.77 trillion in losses due to inventory distortion for 2023.
Legacy retailers face the challenge of understanding and predicting the complex interplay between human attention, intent, and action across these infinite actions. In other words, they are unable to distinguish meaningful trends from temporary fluctuations.
The Creator Economy Business Model
Creator Economy empowers individuals to monetize their content, skills, and influence across digital platforms using engaging content such as videos, podcasts, blogs, or social media posts. The creator economy is rapidly transforming the retail landscape, with platforms like Temu and TikTok Shop outpacing established players like Shein in remarkably short timeframes.
Hidden Cosmetics' TikTok Success
Last month, a makeup artist with 500,000 TikTok followers created a Halloween makeup tutorial using Hidden Cosmetics' eye shadow palettes and glitter pigments. The video showcased the artist's skill and the product's vibrant colors, garnering 2 million views within 24 hours.
As the video gained traction, other creators started recreating the look, tagging Hidden Cosmetics, and using their branded hashtag. This organic, user-generated content led to a surge in interest for the brand.
Hidden Cosmetics' TikTok Shop saw a 300% increase in traffic, with many in-app purchases for the featured products.
The brand then collaborated with the original creator and other influencers to launch a limited-edition Halloween palette. They used TikTok's live shopping feature to showcase the new product, allowing viewers to ask questions and make purchases in real-time. The live event attracted 100,000 concurrent viewers and sold the entire stock within an hour.
This viral moment fueled a 304.5% month-over-month growth in video views, averaging 761,200 weekly views in October, highlighting TikTok’s power to elevate niche beauty brands through user-generated content, influencer collaborations, and integrated e-commerce.
The Future of Retail
The future of retail is being shaped by algorithms and played out on smartphones, while traditional retailers continue to operate on outdated models. The change is not just affecting how consumers shop – it's altering how products are made and sold.
The question isn't whether Western retail will change but whether it can adapt quickly enough to this new reality.
Those who can swiftly adjust to this new paradigm will be at the forefront of the most significant shift in retail since the advent of e-commerce. While the traditional players are fighting over distribution, the real revolution is in dynamic, AI-generated products that respond to instant demand and then amplify it with the same trusted stories and creators.
