As trade tensions escalate between Canada and the United States, Canadian retailers face growing uncertainty. The prospect of retaliatory tariffs looms, raising concerns about increased costs and shrinking margins. To unpack these challenges, Retail Insider spoke with Rob Hong, CEO and co-founder of Sapling Financial Consultants. With deep expertise in financial strategy, Hong sheds light on how businesses can adapt and thrive despite the hurdles.
The Tariff Impact on Canadian Retailers
While initial tariffs imposed by the U.S. primarily target Canadian exports, the ripple effects could reach Canadian retailers through retaliatory measures. Hong explains, “The tariffs themselves won’t immediately impact Canadian retail directly—it’s when Canada imposes counter-tariffs on U.S. products that challenges emerge.”
In previous instances, Canada targeted imports from Republican stronghold states, strategically increasing pressure. “If a 25% tariff is added to certain products, retailers face tough decisions: absorb the cost or pass it on to the consumer,” Hong says. The elasticity of demand often dictates the approach. For example, a tariff on almond milk but not oat milk may push consumers to switch products, forcing retailers to absorb the increased cost to remain competitive.
These dynamics demand careful planning. “Retailers will need to evaluate their pricing strategies and make tough calls about where they can afford to adjust margins,” he notes.
Understanding Costs to Protect Margins
A recurring theme in Hong’s advice is the importance of understanding cost structures. “Most manufacturers we work with have a handle on direct costs, like labour and materials, but struggle with allocating indirect costs—such as supervision, equipment, or administrative overhead,” he explains.
Activity-based costing (ABC) models, which allocate costs more precisely across products and processes, can uncover surprising insights. “Often, businesses discover they’re underpricing high-margin items or overcharging for low-margin ones,” says Hong. “This clarity allows them to adjust strategies and stay competitive.”
Absorbing vs. Passing on Costs
Balancing the decision to absorb costs or pass them on to consumers depends on market conditions. “If your product becomes 25% more expensive overnight, you may have to absorb some costs to remain competitive,” Hong advises. Retailers must assess price elasticity and benchmark competitor pricing to determine their strategy.
Hong also highlights the importance of strong supplier relationships. “Retailers can negotiate better terms or source Canadian alternatives where tariffs apply, potentially mitigating the financial impact,” he says. Citing Dollarama’s direct sourcing approach in China as an example, Hong notes that proactive procurement strategies can offset rising costs.
Leveraging Canada’s Cost Advantage
Despite the challenges, Hong believes Canadian businesses can turn adversity into opportunity. “Our dollar is weaker, and productivity is lower than the U.S., but this creates cost advantages for Canadian companies operating in the U.S. market,” he says. By improving productivity and optimizing pricing, Canadian retailers can capitalize on this competitive edge.
“Businesses should see this period as a chance to sharpen their operations,” he advises. “Invest in systems that provide better cost visibility, streamline processes, and focus on long-term gains.”
Smart Pricing Strategies for Resilience
Dynamic pricing—already popular in industries like travel and rideshare—could offer a lifeline to retailers. “Dynamic pricing is about leveraging data to adjust prices based on demand,” says Hong. “For instance, Uber’s surge pricing incentivizes more drivers to hit the road during peak times.”
While controversial in some contexts, dynamic pricing could help retailers respond to market pressures. “Consumers may resist, but businesses can use it to optimize inventory and maximize margins during demand surges,” he adds. For Canadian retailers, integrating dynamic pricing models could create a competitive edge.
Future Trends in Pricing Strategies
Looking ahead, Hong predicts continued growth in dynamic pricing, fuelled by data analytics. “Retailers are collecting more data than ever, allowing them to tailor pricing to individual customers or market conditions,” he says. He also anticipates broader adoption of advanced cost analysis tools, enabling businesses to fine-tune pricing models and unlock hidden efficiencies.
However, Hong acknowledges the potential consumer backlash against dynamic pricing. “There’s a fine line between maximizing revenue and alienating customers,” he warns. Retailers must balance profitability with maintaining trust.
Advice for Retail Executives
For retail leaders navigating these complexities, Hong emphasizes preparation and proactivity. “Map out potential tariff scenarios and identify high-risk products,” he suggests. “Start conversations with vendors about pricing flexibility, and explore Canadian substitutes where feasible.”
Hong also encourages leveraging data to understand competitor pricing and customer demand better. “Insights are your greatest asset in this environment. With the right information, you can make informed decisions and stay ahead of the curve.”
Finally, Hong stresses the importance of attitude. “Retailers who view this as an opportunity to innovate and adapt will emerge stronger,” he says. “Those who dig in and focus on efficiency and relationships will be better positioned to weather uncertainty.”
“Ultimately, this is about playing the long game. The companies that invest in understanding their costs, optimizing their pricing, and strengthening their relationships will be the ones that thrive.”
