Dive Brief:
- Bob’s Discount Furniture has faced ongoing volatility from tariffs and fuel-related pressures but is confident its “tried and true playbook” will offset any incremental costs that it could incur, CFO Carl Lukach said in a Q1 earnings call on May 7.
- President and CEO Bill Barton said the furniture company is encouraged by recent tariff rate reductions and adjustments made towards steel and aluminum duties for its recovered products.
- Bob’s also applied for a tariff refund. “It's too early to tell timing or certainty of the refund. It all remains in audit process,” Lukach said.
Dive Insight:
The furniture industry is dealing with a mix of challenges, ranging from a difficult housing market to logistical disruptions and higher costs, COO Ramesh Murthy told Supply Chain Dive in an email.
For Bob's, this includes a 10% global tariff rate and a 25% tariff rate on upholstery items entering the U.S. Upholstered furniture tariffs would have increased to 30% at the beginning of the year, but further increases have been delayed for an additional year.
“The 25% upholstery tariff is really one area that’s been more outsized, given 50% of our product mix is upholstery,” Lukach said.
To combat tariffs, Murthy said Bob's mitigation playbook consists of three steps:
- The company leverages a private-label model and doesn’t sell any third-party brands, which helps Bob’s work directly with suppliers to uncover solutions and offset costs.
- Bob’s has strategically shifted production to new geographies to mitigate risks and cut costs. One example is that the company no longer has any supplier production in China.
- Targeted pricing is also another step the company takes as a last resort.
Similarly, other retailers, including PVH Corp., Gap Inc., Newell Brands and American Eagle Outfitters have expressed confidence in their tariff mitigation playbooks. PVH, for example, plans to mitigate levies by leaning on previous strategies like re-sourcing and price adjustments.
Bob’s also faced pressure from spikes in fuel prices in Q1. Several industries are being impacted by changes to global oil supply due to the ongoing Iran war, which has caused disruptions in the Strait of Hormuz.
“We saw some incremental trucking surcharges related to domestic fuel costs during the first quarter, though the impact was small,” Barton told analysts on the call.
Still, Bob’s expects fuel-related pressure during the second quarter from linehaul and delivery costs. Lukach said Bob’s is managing these costs through its logistics network and considers it largely manageable at this point, noting that the company is in talks with vendors and ocean freight carriers on fuel cost mitigation.
“We are a large player and have great relationships with both our ocean freight and delivery partners. We are feeling confident in our ability to deal with whatever fuel shocks come our way, and our consistent volumes benefit our carrier partners,” Murthy said. “In fact, right now we’re completing our contract negotiations for next year with ocean freight carriers.”
