The Cost of a Tariff: What to Expect at K&L
Update Dec 12th, 2019: As of yesterday, the USTR added an addendum to their tariff documentation that includes product codes that make all European wines (and most other European goods) vulnerable, up to 100% tariffs. While we believe anything this extreme is not plausible/sustainable in any way and that there will be a resolution in the near future, we cannot sustain offering pre-arrival wines without additional terms of sale in this environment. We are hoping for a quick resolution in which we have access to the broader European market, but in the meantime we will hold pre-arrival imports in Europe until the situation resolves itself. If this delay is an inconvenience, we can offer refunds for any new purchases going forward if the situation extends beyond a reasonable time frame. For existing orders, we still intend to fulfill these commitments as originally promised, although they will also be subject to delays and/or tariffs in this environment. Thanks for your patience as we help navigate this landscape - there is very little agency for K&L in how, when, and why these tariffs are enacted, updated, and enforced. We’re continuing to look to operate with transparency and deal with the ever-changing conditions the best way we can. In the meantime, our warehouse and stores are full with some of the most compelling in-stock wines you’ll find on today’s market.
Recently, the World Trade Organization (WTO) approved US tariffs on certain imported goods from the EU as a method of collecting settlements due from a fifteen-year-old Airbus/Boeing subsidies case. Many European goods were targeted, but the three that have affected us most at K&L are:
Still wines from Spain, Germany, and France wines that are 14% alcohol or lower, in containers less than two liters
Single malt whiskies, Irish and Scotch
Liqueurs and cordials from Germany, Ireland, Italy, Spain, and the UK
The above products are subject to a 25% tariff, or in simple terms, K&L must pay an additional 25% of the cost of the product to import these items. There was almost no time to plan, react, and adjust to the nearly overnight imposition of this penalty back in mid-October. It might go without saying, but it is not a minor thing to add another 25% to our cost of goods in a hyper-competitive retail marketplace where thin margins are already the norm.
This is a roadblock that we will be managing over the coming months, but as we navigate this new environment it is worth taking the time to confirm that all of our current commitments that we have on pre-arrival products will be fulfilled at the original price paid if possible. There is no other way to operate in this business—the trust that we’ve built with our clientele over the years is much more valuable than the thousands of dollars we’ll end up paying to get these special purchases to your cellar as originally promised.
This also means that everything we’re offering on our website, pre-arrival or otherwise, is confirmed available at the pricing that is listed. Producers worldwide are continuing to craft memorable wines at an incredibly high level, and our charge is to share those bottles with you. You won’t see any “tariff-free” terminology in any of our offers or website—our products are available as is, as always, making sure you have access to the best in the world of fine wine with great provenance, at prices that are extremely competitive on the market. This same logic applies to our current offerings as it did before the tariffs were enacted last month.
We’re not going to pretend nothing has changed—it is more difficult than ever to work in a landscape that has been so abruptly and dramatically disrupted, and there is a definite and sudden financial impact. In the immediate future, we might have to tread more lightly in regions that are more significantly impacted, but we also will continue to find places to invest where compelling opportunities exist. And there are plenty.
The above list of tariff-eligible categories does not capture any Italian wines or Champagne. A good portion of Bordeaux and Châteauneuf also escape the classification. Combine this with a world-class program from Australia, New Zealand, South America, and, of course, everything from our domestic categories, and there continues to be a wealth of amazing wines and spirits. We also expect that prices on affected products will moderate somewhat, especially if this is a long-term issue. Either way, we will explore every avenue we have to continue to offer compelling wines and spirits from these regions at rewarding prices, whether it is Bordeaux, Burgundy, Rioja, Ribera del Duero, or Single Malts.
Hopefully, we will see some reversal soon. This could come in a policy decision similar to what we’ve seen with the softening or elimination of other recent tariffs. Another possibility is that a counter case early next year is expected to bring similar penalties against the US—a situation that could cause the EU to retaliate with their own compensatory tariffs, or ideally encourage some compromise where these initial tariffs are pulled back. This is all speculation, however, and our goal is to navigate the situation as it exists today.
In the meantime, we are still bringing in shipping containers regularly, footing the bill for the added tariffs, and fulfilling our current commitments. We do expect to encounter some small delays with pending pre-arrivals. Not only do we have to provide detailed documentation to clear customs, but the agencies that do the approval process have their own operational burdens to take on, along with a new layer of declaration and classification that was thrown at them on the fly. We’re doing what we can to minimize those delays and hope that it’s only a matter of weeks beyond our regular ETAs.
As we round the corner into the 2020 year, we’re looking forward to a landmark 2018 Burgundy vintage, the stunning 2016s from Piedmont, the long-awaited 2015s from Brunello, new thrilling Champagne releases, a potentially great 2019 Bordeaux en primeur campaign, new Direct Import partnerships, and more. Add this to a diverse Old & Rare department, a thriving auction community, and one of the best domestic wine programs in the country and you’ll find that, in the face of tariffs, relatively little has changed for even the most dedicated wine and spirits collectors out there. Thank you for staying along with us for the ride, and we’ll look forward to helping you find your next great bottle, tariffs or no.