Balsam Hill CEO on Tariff Impact

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00:00So I wasn't yet on this show when you last joined the close. So when that 87 percent figure was

00:06announced in our morning meeting, I was shocked to hear that. So is that still the case or have

00:11we seen sort of a shift away from that reliance on China? So it's still the case. I think we're

00:16going to see that number come down at the end of the year once the government reopens and numbers

00:20are reported again. But for us, everything we sell, 99 percent of everything Boston Hill sells

00:25in the U.S. is imported. And so we've been working really hard to diversify our supply chain. We

00:30understand the president wants to rebalance trade, level things with China. But when you have 99 percent

00:35of your goods imported, it's a challenge. We think we're going to end up with a little over 60 percent

00:39of our goods coming in from China this year. So a big change for us. And that's something that we're

00:44doing, trying to support diversification, tweaking our supply chain. We don't know that these products

00:48are going to come back to the U.S. because there's so much manual labor involved in them. But we are

00:53able to diversify that supply chain. And it's just going to take years to do that. Years to do that.

00:58And it's interesting, you know, in our discussions around China, we spent a lot of time talking about

01:02the non-tariff issues at stake when you think about soybeans and other products. But I would

01:07imagine from where you're sitting, you're keenly focused specifically on those tariff levels, which

01:12it seems like often they're used as a negotiating tactic and they change all the time. That must be

01:17difficult from the seat that you're sitting in. Yeah, it is definitely a challenge for us. We are

01:21constantly adjusting that supply chain. I think last time I was on the show, we suggested that

01:25the government consider a 90-day pause on China, which they did a week later, which really helped

01:29us. We were able to bring a lot of goods in to try and keep those tariff costs down. And that's our

01:34main lever is how do we bring things in at the lowest rates possible? We do know that the president

01:39loves Christmas. And, you know, he campaigned on bringing Christmas back. And so we are hopeful that

01:45we'll see a change there. In 2019, he actually delayed implementation of tariffs and specifically

01:51cited the reason of helping Christmas. So we are hopeful that one of those changes that you

01:55reference will be a lower rate, at least specific for Christmas goods. So we'll see.

01:59The tariff costs or the increased tariff costs, have you basically shouldered that yourself or have

02:03you been able to pass on some of that to your consumer? We've shouldered as much as we can,

02:07mostly through kind of when we brought goods in at lower rates. But we have had to raise prices some

02:12in the U.S. just to cover that just because we didn't have any other choices. Unfortunately for

02:18us, our competitors are big box retail stores that either have a domestically sourced grocery

02:22business, a domestic lumber business. And so they have more options to eat the tariffs and spread

02:27things out. But for us, everything we have is imported. But we've tried to keep that as low as we

02:32can this year. There's been a lot of talk about just the legality of these tariffs and then sort of

02:36the provisions that the president used to impose them. Assuming that we do get a court decision that does

02:42rule them illegal or not being collected in the proper way. Are you anticipating that you might

02:47actually see a refund? Well, I hope so. I mean, we've been offered by financial firms we can sell

02:52our futures on the refunds and get 20, 25 cents on the dollar. So we hope we would see that back.

02:57I think the thing that's interesting about this is I actually think the president's going to win

03:01either way, depending on which way the Supreme Court goes. Because if the court upholds the lower

03:06court decisions and those refunds come back, the economy's going to have $250 billion coming into it

03:12that's going to go back to American businesses, that's going to trickle through the economy. And

03:16I think it's actually going to lift everything. And then the president's going to be able to impose

03:19tariffs through 232s and 301s and still get those tariffs in place, but with this economic win

03:25behind us. So we'll see how it turns out. The hearings are next week, but I think it's going to

03:30be a win either way for the White House. But if that decision came out and a refund were announced

03:33before Thanksgiving, before Black Friday for retailers like us, that would be a huge boom.

03:38Well, on that topic, let's talk about how the holiday spending season is shaping up. Of course,

03:43it's the 28th of October. We're not even through Halloween yet, but obviously for someone such as

03:48yourself, it starts way before then. Yeah, we start selling in July. That's kind of our kickoff. And

03:54then it's a slow ramp up until this weekend. Once you get past Halloween, everyone kind of takes

03:58those spider webs down quickly and those, you know, witches and whatever, and they go right to

04:03buy Christmas decor. And so we're expecting to see a boost. Things have been a little soft this

04:08year in the U.S. market, really strong outside the U.S. And I think consumers are just waiting for

04:13that right deal, that right sale there. We can see them as an online retailer, put things in their

04:17cart and leave it there a little bit longer. And then as that sale hour timer clicks down, they

04:22come through with a sale. So I think it's going to be a strong year, but we're going to have to wait

04:27and see in the next couple of weeks. You're going to have to offer more discounts in order to get some

04:30of those sales through the door? I don't know that. I think we we have, you know, Christmas is a

04:35declining good, right? Like it's it's not an expiring good in that it spoils. But the closer

04:40you get to Christmas, the more the discounts are. So it depends on supply and demand. Most retailers

04:45cut back what they brought in this year. And so I'm not sure we'll see as many discounts because

04:50there's fewer units to sell. Yeah, I mean, Christmas is bad. I mean, we're big on all holidays. So we're

04:54just we're cycling through decor. I always have this image of you that your house must just be all in

04:58Christmas gear, like 365 days a year. I do my best. It's such a busy time of year for me right

05:04before. So I and my kids expect, you know, that I'm the one doing this. This is your job. So

05:09all right, Mac. Well, it's always great to talk to you. Really illuminating just kind of about the

05:15state of things right now. And of course, who doesn't love Christmas?

05:18That's true.

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