Retail companies spanning from the luxury sector to lower-value goods are using a tariff arbitrage strategy within their supply chains to lower tariff bills and keep costs down for consumers.
The business model, called B2B2C (business-to-business-to-consumer), is changing the way retailers handle orders placed by consumers on a company’s website. Typically, an item purchased online is directly sold to the consumer. But with President Trump’s trade war hitting the retail sector hard and hitting many manufacturing hubs where retailers source goods with high tariffs, this type of transaction is now more often being handled through a middleman company that acts as a merchant of record, acting on behalf of the retailer as a U.S. entity. ESW and Global-e are companies that act as a merchant of record for retailers selling products into the United States.
Once a U.S. consumer purchases the product on a retail website, the actual transaction is routed to the retail middleman that can purchase the product at a wholesale price from the retailer. The middleman company ships and pays the U.S. tariff on the product’s wholesale price on behalf of the retailer.
Antony Talbot, group trading director for U.K.-based accessible curve fashion retailer Yours Clothing, tells CNBC that the B2B2C model has halved the company’s tariff costs. He gave the example of a $30 dress sold from its online U.K. storefront and manufactured in India. The layered U.K. and India tariffs would add $15 to the bill, pushing the item up to $45. The average receipt of a Yours Clothing U.S. customer is between $120- $150.
