SYDNEY--When the leader of global appliance maker Breville spoke to shareholders at its annual meeting on Thursday, he moved quickly to address the elephant in the room.
"Now that [Donald] Trump has won the U.S. Presidential election, the near-term risk of material tariff increases on consumer goods coming out of China has solidified," Chief Executive Jim Clayton said.
Trump during his campaign signaled that he would lead a more combative tariff-focused trade regime than in his first term, when he launched a trade war with China and imposed higher levies on steel and aluminum from Europe, Canada and Mexico.
Trump's plans now remain unclear. He has talked about a tariff of 10% to 20% on all imports, a tariff of 60% or more on imports from China, and tariffs of up to 100% on some imports from Mexico.
For Breville, the threat of new tariffs is a problem. The Australian company sells appliances such as espresso machines, toasters, juicers and microwaves in more than 70 countries, including the U.S. Most of its products are manufactured in the area around Shenzhen, a sprawling Chinese city on the border with Hong Kong.
Breville's relationships with Chinese manufacturers are deep. The owner of consumer brands including Sage and Breville has worked with many of them for more than two decades, cementing a strategy that has helped to keep its prices competitive. Prices of its coffee machines, for example, can range from $2,430 at the top of the range to as low as $178.
Clayton said the company is already responding to Trump's election, including by moving more of its production out of China as quickly as possible to protect itself against any new U.S. tariffs. "We will continue our inventory build in the U.S., unabated, likely until the increased tariffs are enforced," he added.
Breville, which makes around $1 billion in annual revenue, has already shown it can move quickly to counter threats to its business.
Around two years ago, it began to build up stockpiles in key markets as a hedge against instability in supply chains during the Covid-19 pandemic. The end to lockdowns world-wide then unleashed a wave of spending, including on household appliances, that overwhelmed the flow of goods around the world.
But there are risks to holding on to too much stock. Consumer habits can change and discretionary spending can drop, particularly when rises in household bills such as energy and food eat into budgets. Companies left with surplus products often choose to sell them at knock-down prices, which can hurt profit margins.
In the pandemic's aftermath, Breville has looked around for factories that are closer to markets, such as the U.S., to source its products. That has included buying from Mexico.
Breville's shares were down 3.2% early in Asia on Thursday, the first trading session after the U.S. election was called for Trump.
Wei-Weng Chen, an analyst at RBC Capital Markets, said Breville's move to build more inventory is a negative for the stock because it increases the company's working capital intensity.
"However Breville's demonstrated ability to manage through elevated Covid inventory levels in recent years should give investors some comfort this time around," he said.
Write to David Winning at david.winning@wsj.com
(END) Dow Jones Newswires
November 06, 2024 19:33 ET (00:33 GMT)
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