Tariff Insanity: How DTC Brands Can Make It Through

Drew Sanocki

Hey Mike.

Michael Epstein

Hey Drew.

Drew Sanocki

I feel like I'm all disheveled.

Michael Epstein

From the whiplash.

Drew Sanocki

From the tariff whiplash today, we had all these show notes about tariffs. And five minutes ago, Trump just. What did he do to cancel all the tariffs, but China, which is a huge one, but I think that's what he did, or did he leave it at 10 % on everybody and then China's?

Michael Epstein

It looks like 10%. So this is like breaking news in the ear from our producers or what? We're on the air about to opine on tariffs.

Drew Sanocki

Hold on a second, Mike. I'm being told by the Nerd Marketing Podcast producer that yes, it's 10 % on everything. And then, yep, 120 % on China.

Michael Epstein

Exactly. Yeah, breaking news. Delay on everybody else except China for 90 days through July, 10 % on all those folks. Then yeah, raising it on China.

Drew Sanocki

10 % during those 90 days. OK, we're going to have the producers look into this. Who's my wife in the other room. I'm sitting here on another call and just I've got the stocks up on like a little Bloomberg terminal here and all of a sudden The Vanguard total stock, you know, which I watch is like a proxy of the market goes up like 9%. Yeah. What the hell just happened? Trump did something. He broke, you know, and now it's the beta. Like, did he, did he, did he cave or did he always want to do this? I don't know. But I'm looking at Shopify up 20%. It was down this morning. It's now up 20%. Amazon up 10%, Klaviyo up 11%.

Michael Epstein

Right.

Drew Sanocki

These are all our peeps, right?

Michael Epstein

Yup.

Drew Sanocki

The Shopify up 20%, I've watched that one as a proxy for DTC, right? Those are our customers. So whether it's rational or not, up 20 % and I don't think that actually is that rational because if you had to guess, you know what percent of DTC is importing from China, it's kind of high. It's got to be like 80, 90%.

Michael Epstein

Same. Huge. Yeah, at least some components, at least some products. We talked to a ton of our apparel brand customers and they have multiple supply chains spread across multiple countries, but China's always, almost always at least a piece of it.

Drew Sanocki

And if anything that, you know, so that one country got worse in this announcement. Right. So, um, Shopify, 21%. So I don't know. I don't know if that means shop to short Shopify or who knows? I mean, we record about a week before the podcast goes live and how many times can this thing change in the next seven days? But, as of today on the 9th, Trump just made an announcement that the tariffs are 10 % for everybody, 125 % for China. What does that mean to DTC brands?

Michael Epstein

Well, I think there's people still need to be prepared, right? Like aside from the fact that China still persists as an issue and who knows if this is going to reverse course again at some point soon. But I think our experience, particularly with turnarounds, is really applicable here because it's all about tightening up your financials, creating more cash flow, all things that are going to be really important for brands that are navigating the tariff situation or other sort of economic and supply chain volatility.

Drew Sanocki

Yeah, so we've got a great book called Turnaround Tips. Gives you a tip a day for 30 days. We'll put a link in the show notes. I think it's at postpilot.com/turnaround. But yeah, I mean, some quick wins. Think about your business as a turnaround. Some of the things you gotta do right out of the gates, I think. And certainly given the situation here and how quickly things could change, I'd probably start looking at where I can cut costs, generally speaking, getting the company as profitable as I can over the next couple of months.

Michael Epstein

OPEX costs though, I think the thing that people default to too quickly is slashing marketing spend. And that feels good for a week, maybe a month. And you really start paying for it. Two months, three months, six months, and a year when your top of funnel has essentially dried up and you're no longer seeing the customer acquisition numbers that you were projecting. So OPEX is the starting point. Hold off on marketing spend. That goes for any channel.

Drew Sanocki

I think one of the points, yeah, one of the points we make, which is taken from Bob Pfeiffer, HBS professor, is to divide your business into strategic and non-strategic costs. Strategic costs are the ones that drive revenue. So sales, marketing, typically. But certainly in different lines of work, it can be different parts of the business. Non-strategic costs are things that you just kind of have to do to stay in business, but they're not driving the top line. Bookkeeping, HR. So, you know, I've seen people do it on a P&L or even just mentally, but you've got your strategic costs in general with them there. Keep paying. And in fact, you often want to be top of market. If you're talking about compensation, you want to pay up for talent there.

Drew Sanocki

And you want to minimize your non-strategic costs. I mean, it sounds intuitive, but now would be a good time to kind of bucket, do those two buckets. Look at all your expenses, you know, in that arena of non-strategic costs. What can you automate, outsource, and so many new AI tools. Like I'd start, I'd immediately start looking there and trying to think of what is core to my business, what skillsets are core around marketing, around merchandising that I want to leave in-house in what I could offload.

Michael Epstein

Yep. I think on the marketing side, a couple of the investments that you want to place a little more emphasis around those retention channels. So obviously squeezing more juice from your LTV from your existing customer base is going to be highly accretive from a profitability standpoint. then sort of reactivation before you continue to scale up on paid spend. So one thing that we've done really effectively, and actually was one of the part of the genesis of PostPilot was the strategy of we'd go into these businesses that had 5 million customers in their customer database, going back years, decades in some cases. They were not engaged anymore with the brand. Like they hadn't purchased in years. They weren't engaged in email anymore. By now they'd unsubscribed or they haven't opened an email in months or years. Like they're just not active in the brand. But what we consistently found was those people can be woken up. And when you get back in front of them and find a way to reactivate them, it tends to be at a much lower CAC than cold prospecting. So going back and finding and getting that customer from three years ago to remember you and come back, it's essentially new customer acquisition at this point. We consider customers sort of completely defected at a year or two years for most brands. So you go back and get a three year old customer to come back at a cap that's like half of what a cold prospect would be. That's a big win for a brand.

Drew Sanocki

Yeah. So I general rule of thumb, start back of the funnel, start dialing in your retention before you spend a dime on acquisition. And now is just a great time to do that because it means like you're making positive ROI investments. To Mike's point, you know, once you've got your email dialed in does not mean you've got retention dialed in. You know, you've got to go beyond that SMS with direct mail. I would start there before I even start on Facebook or on direct mail prospecting. So dial that, then go to retargeting next, and then, and only then kind of move to acquisition. But now's a great time to do it. Make sure you've got your lifetime value maximized because that's where you are to make your money. And especially now with so much uncertainty, you want that sort of profit buffer in case your supply channels immediately fall off. We also talk about taking costs out of the business on the IT side. We talk a lot in this book about cutting any IT projects that take longer than six months. We talk about moving from in-house development to off the shelf. Those decisions that you've probably been putting off, maybe now would be a good time to kind of take them head on before the holidays. Like if you're operating headless, if you've got an internal dev team and you feel like you need to do it to enhance the front end experience, really take a hard look at that and compare it up against just running an out of the box Shopify installation, Shopify, Klaviyo gets you so much on the cost side there.

Michael Epstein

Test pricing. So now is the time you're gonna need to figure out how elastic or inelastic your pricing or your customers are. So you can test different price points. You could potentially split test different price points. There's other ways to creatively think about adding value. So maybe you're bundling, you're increasing pricing based pricing, but if you bundle and get the AOV up, then you get a discount and it's more commensurate with what your previous pricing was. So give people the perception of more value. You're increasing pricing, but is there a free offer, a free gift, free offer that you can include with that? And it doesn't even always need to be something tangible. In some cases, maybe you're giving away a free hat, you know, that's a $20 value. costs you two. And you've increased prices by five, but now you're increased, you know, five bucks, but now you're giving away a $2 hat with a $20 perceived value. Like that's a way to test into it. Even service based add-ons. So, you know, a free, you know, virtual consultation with purchase of your product. So, you know, it, hundred dollar value. You've increased the price of your product by 10%, but you're going to offer this additional value, high perceived value, but low cost to actually deliver and bundle that in with your pricing. There's a lot of ways, creative ways that you can test price increases that soften the blow for customers. What we're seeing, you know, some feedback I've been seeing that isn't working is when we've already started seeing people adding like the tariff surcharge to the checkout. And it seems like people are having a pretty negative reaction to that. They're like, this isn't, you know, it's not my problem that you have to make more money. So you're adding 10 % or 20 % of the value of my cart just in order to surcharge it through, again, strategic testing of price increases, but wrapping that in other ways to increase the value, the perceived value of the customer's getting.

Drew Sanocki

I think that's interesting. I wonder if brands, I mean, this is more of a long-term solution, but you think about over-dependent. We talk a lot about over-dependence on one acquisition channel or one marketing channel like Meta and how important it is to diversify. I feel like those lessons come and keep hitting us over the head, you know, starting with iOS 14 and 21, but every couple of months we get hit over the head again. Same thing for supply chains. Can you diversify your supply chain? Easier said than done, certainly easier than spinning up a new marketing channel, but either diversifying that supply chain now would be a good time, or even if you've got some capital, investing in more inventory and taking some inventory to help you weather the ups and downs that have been here the past week.

Michael Epstein

Yep. Those are some of our top immediate actions that you can take. if you, but we've got a ton more in the turnaround book that I think is really applicable to brands right now. We're trying to shore up their balance sheet, shore up their P&L and make sure that if these are going to persist at a minimum, you're able to keep the lights on and wait this thing out. I don't think it's going to go on forever.

Drew Sanocki

Hope not, especially for those who are importing from China.

Michael Epstein

Yep.

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