The holiday season typically brings excitement for retailers, but for small business owners across Canada, this year's festivities have been overshadowed by supply chain chaos stemming from unpredictable U.S. tariff policies on Chinese goods.
Inventory Crisis During Peak Shopping Season
Matt Hassett, founder of New York-based sleep wellness brand Loftie, finds himself in a precarious position as the year-end shopping rush approaches. His company, which sources sunrise lamps and phone-free alarm clocks from China, has seen its inventory levels plummet to dangerous lows.
"We have sold down to extremely low stock levels - we probably have about 10% of the inventory we need," Hassett revealed earlier this week. The culprit? Former U.S. President Donald Trump's tariff flip-flop on Chinese imports, which has created massive uncertainty for retailers relying on Chinese manufacturing.
November and December typically account for approximately one-third of U.S. retailers' annual profits, making this supply chain disruption particularly devastating for small businesses already operating on thin margins.
The Impossible Choice: Tariffs or Costlier Alternatives
When Trump threatened tariffs as high as 180% on Chinese imports in mid-April, Hassett explored shifting production to Thailand where duties were lower. However, when the rates on China were later reduced to 20%, the alternative factories with 20% higher production costs proved even more expensive than paying the tariffs.
This left small firms like Loftie facing an impossible decision: absorb steep tariff costs or find new suppliers at even higher expense. In the end, Hassett stuck with his Chinese manufacturer, but the scramble delayed orders, leaving him critically short of stock ahead of Black Friday and the holiday shopping season.
The situation echoes across the small business landscape. Brooklyn-based Lo & Sons, which sells travel bags and accessories online, scouted up to eight factories between April and June in multiple countries including India and Cambodia before returning to its long-time supplier in China.
"On top of costing us a ton in tariff payments, the uncertainty prevented us from placing purchase orders," said CEO and co-founder Derek Lo. "Now we're sitting on lower-than-ideal inventory."
Disproportionate Impact on Small Businesses
While large retailers like Walmart and Costco can absorb supply chain shocks through their massive scale, small businesses face existential threats from these disruptions. According to business analytics provider RapidRatings, operating margins for small retailers with total assets less than $50 million have plunged to negative 20.7%.
James Gellert, executive chairman of RapidRatings, highlighted the severity: "For the first time since the pandemic, average profit has dipped into negative territory... disproportionately impacting smaller companies that lack the scale and resources to absorb these pressures."
The data reveals that 36% of small retailers now face high risk of bankruptcy compared to just 12% of large retailers.
Broader Consequences: Job Cuts and Product Reductions
The ripple effects extend beyond inventory shortages. More than a dozen small U.S. retailers reported significant cost increases, leading some to cut jobs or trim product offerings to conserve cash.
Some businesses attempted to get ahead of potential duties by placing large holiday orders early, but now risk being stuck with unsold inventory as consumer confidence shows increasing fragility.
New York jewelry brand Haus of Brilliance shifted some production to Thailand and the U.S. to offset approximately 50% tariffs on India, its main manufacturing hub. While the company has completed its first production run in Thailand, founder Monil Kothari acknowledges "we will have shortages this holiday season and into next year."
Back at Loftie, Hassett does have one shipment arriving in time for Black Friday, but he's already missed significant sales opportunities. "We could've made 50% more sales if we had enough inventory," he lamented, highlighting the direct financial impact of the tariff-induced supply chain disruption on small business bottom lines.
