‘A MAJOR MOVING TARGET’

ROYCE MCCANDLESS

rmccandless@idahopress.com

BOISE — From the campaign trail to the oval office, President Donald Trump made clear that the implementation of tariffs on foreign nations would be a central part of his administration and implemented to reverse higher costs and increase onshore manufacturing. For some small businesses, however, this approach puts them in an uncertain, if not precarious, position.

Karen Appelgren, a business advisor for Zions Bank, spoke about how she has worked with local businesses in recent months to advise on how to respond to the tariff environment. The best course of action varies business to business and depends in large part on whether needed goods or materials can be sourced domestically.

For clients that are directly impacted by the levies, Appelgren said the impacts have been “devastating.” One client whose products were sourced from China started looking at India or Vietnam as a way to get around the price increases before tariffs were extended broadly throughout south Asia and even Europe, Canada and Mexico. As for advice on how businesses can respond, Appelgren recommended pursuing alternative suppliers through the Small Business Administration’s supplier search database or Tech Help Idaho’s Supplier Scouting program. The effects of the tariffs, however, are also being felt by manufacturers themselves.

A board member of the Idaho Manufacturing Alliance, Appelgren noted additional concerns from companies who are looking to bring their operation to the United States but in some cases the needed manufacturing infrastructure is simply unavailable, and, if a company desires to onshore, the components themselves will be subject to tariffs.

“It’s not just tariffs on the products,” Appelgren said. “There are tariffs impacting manufacturing equipment and it takes a great deal of time to get a manufacturing facility up and running.”

Beyond changing supply lines, businesses also must pay attention to their customer base and accurately gauge their level of price sensitivity. While some customers may be willing to share the costs of tariffs through a price increase, others may be so price sensitive — and so critical to the business — that owners feel compelled to shoulder the cost, Appelgren said.

For those that feel a price increase is necessary, gradual increases can reduce sticker shock and preserve customer loyalty, but could bring with it a market impact that spreads to businesses not directly impacted by any tariffs, but nonetheless are operating in a market where competitors are raising prices. In these cases, some may choose to raise prices to “maintain the status quo,” Appelgren said.

While many businesses over recent months have been taking a wait-and-see approach when it comes to any price adjustments as tariff rates have been floated, implemented and repeatedly paused, some businesses that have absorbed costs thinking they could be short-term measures are beginning to feel pressure to take action.

“The discussions at the federal level are continuing and I think some are now saying to themselves ‘I am going to have to do something at this point because margins are shrinking,’” Appelgren said.

SAALT

Jon Hoeger, president and co-founder of the Boise- based menstrual care company Saalt, recalled being in Washington, D.C., on the so-called Liberation Day. One of the announcements, he said, was a 44% tariff on Sri Lanka — the south Asian nation that is the source of Saalt’s menstrual underwear, a product Hoeger described as the company’s “primary focus.”

Hoeger said the United States lacks a sufficient labor force with the requisite technical skills to make the quantity of undergarment needed for Saalt’s customer base. The multi-layer underwear makes for a highly technical production process, he said.

While more standard underwear would require about eight operations on an assembly line, Saalt’s underwear requires 26, Hoeger said.

Even if the availability of skilled labor weren’t a concern, he said the difference in living wages between the United States and Sri Lanka would make the underwear cost-prohibitive for buyers as the company would need to raise the price of its underwear about two-anda- half times to keep a sufficient margin and not go out of business.

“There’s just no way the market will bear that cost,” Hoeger said.

This prompted Saalt to consider India as an alternative, as the country faced a lower, 20% tariff. Since then, however, the tariff rates have flipped, with Sri Lanka facing a 20% tariff rate and the administration finalizing this week that India would be subject to 50% tariffs, a change that prompted Saalt to abandon plans to change its underwear manufacturing location, Hoeger said, adding that the repeated changes in rates have made a the proper response to tariffs “a major moving target.”

Even some of Saalt’s offerings that are manufactured domestically are bearing the impacts of tariffs. Their menstrual cups and discs, Hoeger noted, are made in the United States and while initially sourced overseas, Hoeger said the company previously shifted domestically to have “100% control” over what ultimately serves as a medical device. While that decision came with slightly higher expense, Hoeger said the quality of the product was worth the difference and remained competitive enough to still be brought to market.

Despite being manufactured stateside they are still packaged with materials from China. Hoeger said Saalt has looked into Taiwan, Mexico and Southeast Asia more broadly as alternatives to China — which has seen a tariff rate peak at 145% before being suspended until November with a 10% baseline rate — but the decision remains in flux.

In order to get ahead of the anticipated tariff changes earlier in the year, Saalt brought in extra inventory. Hoeger noted the company also had the ability to borrow from its credit line to further stockpile, but that would ultimately mean offsetting the cost of tariffs with the cost of interest. For a company that is 7 years old and “still very much in the growth phase,” that can be difficult, he said.

“We’re not Apple,” Hoeger said. “We’re not sitting on hoards of cash where we have a trillion dollars on the balance sheet that we can just say ‘hey, let’s buy a bunch of stuff in advance and absorb this.’” Hoeger said Saalt, whose products can be found at major retailers including Target, Fred Meyer and Amazon, has begun A/B price testing to see how its purchase volume changes as it sells off the rest of its non-tariffed inventory and begins receiving tariffed products.

He noted that if a price difference of a few dollars was implemented, it could push price sensitive customers out of the market in an increase that would go to the cost of tariffs, rather than the company’s bottom line.

In an added complication, the company is continuing to comply with Food and Drug Administration (FDA) audits and regulations around medical device manufacturing in the same way as pads and tampons, but, unlike these products, Saalt’s offering is not subject to medical device tariff exemptions.

Instead Saalt’s products are tariffed as apparel, presenting a regulatory discrepancy that would prove a major task for anyone to remedy, let alone a single small business.

“It’s not like I can just march over to K Street and have them go solve this problem,” Hoeger said in reference to the Washington, D.C. thoroughfare, which is home to many lobbying groups, “because we just don’t have the resources.”

SOLENI SHOES

Boise-based Soleni shoes is a women’s orthopedic shoe brand run by Lindsey Carmichael, a St. Luke’s orthopedic physician assistant who has similarly needed to navigate an uncertain tariff environment. The emerging business has been on the market for 20 months, and while Carmichael said she considered making her entrepreneurial pursuits a fulltime endeavor after founding Soleni in 2019, she no longer considers this course of action feasible. That was originally due to cost increases in the wake of the pandemic and now she fears tariffs represent something she “may not be able to weather.”

Soleni is currently manufacturing in China and made two purchase orders in recent months, the second of which was hit with extra tariffs, bringing with it a price difference that “wiped out” her savings account, Carmichael said.

Each of these orders contained around 2,000 pairs of shoes at an initial cost of about $100,000. In the last 12 months Soleni has sold about 500 pairs of shoes and expected to see about 30% growth this year and next, potentially allowing the purchased inventory to be sufficient for another two years, Carmichael said.

Carmichael is the only employee at her company and utilizes third-party vendors for marketing, works with a Portland-based footwear developer and has used local third parties for storage and distribution. As tariffs have required her to cut costs, she has resorted to self-distribution out of her garage and uses a storage unit in her yard.

“For a startup you just do what you got to do, but it’s added another 10 to 20 hours to my week on top of a full-time job,” Carmichael said.

This strain has also led her to shift away from starting or containing new shoe designs and instead prioritize building up her marketing skills. Carmichael added that she has pulled back from finishing or starting future shoe designs as a result.

Despite positive sales and signs of future growth, Carmichael said that broader market uncertainty has limited her access to capital, and ever-shifting tariffs have led her to feel a change in where Soleni’s shoes are manufactured will come without a promise of future success.

“I have no plans to make another purchase order unless something changes,” Carmichael said. “(Until) there is some sort of guarantee that it will stay that way, you know, and not change every other day.”