Guidance from KPMG’s Duleep Rodrigo
Economic policy decisions, particularly those related to tariffs, are among the most disruptive forces shaping the retail and consumer goods sectors today. Unlike a traditional economic downturn, where demand signals tend to follow familiar patterns, tariff implementations and revisions introduce a high degree of volatility, making strategic planning exponentially more complex. In a recent conversation with Duleep Rodrigo, KPMG US Consumer and Retail Sector Leader, we examined the real impact of tariffs on retailers, brands, and consumers—and the findings challenge some prevailing industry assumptions.
The Volatility Problem: Why Retailers Struggle to Plan
Retailers thrive on predictability. Supply chain logistics, pricing models, and consumer behavior forecasts all hinge on a stable economic environment. Tariffs, however, upend that stability. As Rodrigo pointed out, “The tariff landscape can shift in a day,” and this uncertainty creates significant challenges for companies sourcing products globally.
Retailers who operate with well-established global supply chains find themselves reevaluating fundamental sourcing strategies. Some have the agility to shift procurement and distribution patterns with minimal disruption, while others face substantial upheaval. The difference often boils down to structural flexibility, supply chain diversification, and financial capacity to absorb cost fluctuations.
Larger retailers and brands with extensive supplier networks, advanced analytics capabilities, and financial resources are better positioned to adapt. They can model tariff implications in real time, identify alternative sourcing options, and implement pricing strategies tailored to different channels and consumer segments. Mid-sized and smaller retailers, by contrast, often lack the same level of operational elasticity and find themselves disproportionately affected.
Consumer Behavior: Brand Loyalty vs. Price Sensitivity
The conventional wisdom suggests that consumers lean on brand loyalty in times of economic uncertainty. While this holds true initially, Rodrigo’s insights reveal a more nuanced shift. As tariff-related price increases persist, consumers inevitably prioritize value over brand familiarity. 
For retailers, this means that maintaining customer trust requires a delicate balance between absorbing costs and passing them along. Rodrigo noted that “price and quality are two of the key variables that continue to come up.” However, their relative importance varies by category:
- Durable Goods (Electronics, Appliances, Automobiles): Quality often supersedes price. Consumers in this category are less likely to trade down to lower-cost alternatives, instead opting to delay purchases until conditions stabilize.
- Everyday Consumer Goods (Apparel, Packaged Foods, Household Items): Price sensitivity is much higher, leading consumers to seek private-label or discounted options.
- Convenience-Driven Purchases: For certain categories, convenience emerges as a decisive factor. Online retailers that can optimize fulfillment speed and seamless shopping experiences may retain customer loyalty even in the face of price increases.
This dynamic shift underscores the importance of consumer behavior analytics. Retailers that rely on outdated assumptions regarding brand loyalty risk losing customers to competitors who are better aligned with shifting priorities.
Retailers Are Not Panicking—They’re Adapting
A notable counterpoint to the media’s prevailing narrative is that most senior retail executives are not reacting with alarm. Instead, they are methodically evaluating the impact of tariffs and adapting their strategies accordingly. According to Rodrigo, many retailers are proactively engaging in the following:
- Diversifying Sourcing Strategies: To mitigate risk, companies are reducing their reliance on a single country for manufacturing. While shifting production outside of China comes with its own logistical and cost challenges, many businesses see this as a necessary long-term move to hedge against future trade disruptions.
- Segmented Pricing Strategies: Rather than applying blanket price increases, retailers are optimizing price adjustments based on product category, competitive positioning, and consumer elasticity models.
- Data-Driven Decision Making: Advanced analytics are being leveraged to model different tariff scenarios and assess the most strategic responses.
This level-headed approach suggests that leading retailers see tariffs as an operational challenge—albeit a significant one—rather than an existential crisis.
Opportunities Amidst the Disruption
While tariffs pose considerable challenges, they also create opportunities for companies that can adapt quickly. Some areas where agile retailers can gain a competitive edge include:
- Strengthening Private Label Strategies: As price sensitivity increases, private-label brands are becoming more attractive to consumers. Retailers that can invest in their own high-quality, lower-cost alternatives stand to capture market share.
- Expanding Regional and Nearshoring Initiatives: Companies looking to reduce their exposure to geopolitical risk are increasingly considering nearshoring options in Mexico, Latin America, and other cost-effective but stable regions.
- Enhancing Supply Chain Resilience: Businesses that were previously hesitant to make supply chain investments are now seeing the necessity of implementing digital tracking, AI-driven demand forecasting, and dynamic inventory management.
- Customer Experience as a Differentiator: In categories where price increases are unavoidable, retailers must focus on reinforcing the overall customer experience. Superior service, personalized engagement, and seamless omnichannel interactions can offset price sensitivity to some extent.
The Bottom Line: Strategic Vision Wins the Day
Tariffs introduce a layer of complexity that retailers would undoubtedly prefer to avoid, but they also serve as a litmus test for resilience and adaptability. Those that rely on short-term, reactive measures risk long-term instability. Meanwhile, retailers and brands that embrace strategic supply chain diversification, data-driven decision-making, and customer-first pricing models are positioning themselves for sustained success.
The message from industry leaders like Rodrigo is clear: panic is not a strategy. The companies that thrive in this environment are the ones that see tariffs not just as a disruption but as a catalyst for transformation. Those that adapt intelligently today will be the market leaders of tomorrow.
