Q&A: Chris Butler, CEO, National Tree Company

LM Group News Editor Jeff Berman recently interviewed Chris Butler, CEO, at Cranford, N.J.-based National Tree Company. Butler provided Berman with an overview of how National Tree is handling tariff policy, supply chain uncertainty, seasonal issues, and sourcing, among other topics. Their conversation follows below. 

Logistics Management (LM): How are tariff uncertainty and inflation impacting supply chains, pricing, availability and consumer demand, especially as National Tree is coming up on its busiest time of the year?

Chris Butler: I will take a giant step back first, to provide some perspective. Around 87%-to- 90% of the artificial decor market is China-based, or historically has been China-based. And so, for example, National Tree has been around since the 1950s. We used to make product here in the U.S., then we moved, ultimately Taiwan, and then ultimately into China. A few years ago, 100% of our goods were made in China, whereas roughly 90% of all our goods are made in China today. When the tariffs came out this year, it just caused a rush and panicking for many companies, specifically, when they went to 145% on China—at 54% things were going to be rattled back and things were going to be more expensive. At 145%, that just kills any supplies. Everybody basically stopped their factories and producing during that period. The other thing companies did was that they also started to rush to other countries in Southeast Asia. We've been doing that for a few years. Like I said, two three years ago, it was 100% in China. This year it will be 55% outside of China, 45% in China, as we diversified already 1.5 years ago. We are less impacted by it now, but still impacted by it nevertheless. The upshot of the two things is factories slowing down or stopping for 30-day period, and then everybody rushing into these other countries was a massive just throttling of the overall market. It's difficult, because all the raw materials still come from China, and then they're made into the trees in these other countries. And so, you know, once the 145% tariff came back, down to 30% after the talks in Geneva, retailers and manufacturers came back and started produce again, but at a lower rate. And I think because, at that point, people were concerned that they would be shipping too many expensive goods into the country.

So, ultimately, the answer to your question of if tariffs have impacted the supply chain of the business, for our category, or business, it's definitely going to create short supply this year. Now, we don't know how much supply is going to be shortened. We're down about 25% from a supply perspective. We have goods from the prior year, so we should be fine. But I do think that in general, there'll be a shorter supply. We know there are some retailers who are definitely going to have less product available than they need to sell. Some retailers should be fine. Others won't be fine. Some manufacturers just weren't able to afford it. Other manufacturers are OK. From a supply perspective, there will definitely be lower supply, again, to what degree, I'm not 100% sure. From a cost perspective, when you're looking at a 20%-to 30% tariff on your goods, depending on the country you're bringing it from, it's going to have an impact. For National Tree, we have worked with our suppliers on trying to absorb some of that but also passing on some of that cost to the consumer. We're passing on a 10% increase, roughly, with some products a little higher and some products are lower. On average, though, it's about 10% that we are passing on to retailers and consumers this year.

LM: Taking that in the same direction, was National Tree actively involved in front-loading efforts earlier this year?

Butler: We saw some companies doing that, but we did not because the way the cycle of the business works, you kind of start looking at, or analyzing, orders in December, because we sell most of our stuff in November and December, and then we start putting the buys in with our factories in January, February, and they start making them. Some had front-loaded, but not a lot had done so. I don't really see that making much of a difference this year to the supply.

LM: Does that have more to do with the cyclical nature of your business?

Butler: Yes, it does, as well as the cash management aspect, too. If you front-load a Christmas tree, you have to wait until December to sell it, and then January and February to pay to get the cash for that, so you're looking at almost 12 months to get paid for that product. Front-loading is a bit tough in this category.

LM: From the consumer perspective, in terms of shoppers being urged to purchase earlier this year and also certain challenges in regards to product availability, do you notice an in earlier sales relative to past years, due to the tariff driven uncertainty and related things?

Butler: We were seeing a little bit of a trend of that Christmas, but in recent weeks, it has been a bit softer. I think the consumer is still sitting on the sidelines, despite my “panic- driven messaging out there,” and waiting to see how much other goods are going to cost. I also think they're waiting to see how much money they have in their pocket at the end of the month. Consumer sentiment is still a bit tough right now. Obviously, employment numbers are a little creaky, and inflation is still a little rocky. I think the consumer is kind of not super-strong right now.

LM: When you look at holiday-related consumer behavior, and again, how do you view e- commerce versus in-store? How much of your sales are done online versus in your stores?

Butler: Most of our business is online. We sell through Amazon, Wayfair, Kohl's, Michaels, Macy's, Walmart, Target and others as well as our own website. The category, on average, we believe, is about 30% penetration online. We have seen a slight uptick over time of that online penetration, but I think the convenience, obviously, is a huge factor. You don't have to put the 7.5-foot tree in the back of your Honda Civic. But certainly, people still like to touch and feel the trees. Walmart is a massive seller of trees in-store, and then Amazon just absolutely dominates online.

LM: With much of the White House’s trade and tariff policies focused on, to a large degree, bringing more manufacturing back to the U.S., given the amount of sourcing National Tree does out of Asia, specifically China, how feasible do you think it would be to set up domestic manufacturing operations and also manage related sourcing shifts, due to the ongoing tariff-driven uncertainty, as well as other challenges?

Butler: I'm a believer in “never say never,” so we're never going to shut down that option, we've looked at it. We've studied it, and we've been diversifying our supply chain for the last few years, too, not for tariffs, just to be diverse. We've looked at nearshoring. We've looked at what that could look like in the U.S. I can tell you today, it would roughly be 2.5-to-3 times the cost of a tree from Asia. Made in America obviously has a great ring to it. I'm not sure the consumer's ready to pay for that ring at this point, especially given the economic uncertainty right now. We're looking, we're looking at automation. Every year that goes by, when I visit our factories in Asia, we see more and more automation. That's definitely more of a more of a possibility in the future. But it's still somewhat of a manual labor-intensive production. At this point, it's not, it's not on the roadmap, but we continue to look at, we continue to study it, so, again, never, never.

LM: As for automation, how does National Tree leverage it, or consider it, in the form of things like AI and robotics, for example?

Butler: We use AI for a variety of different things, including product development, content, consumer demand signals, and video training. But we don't use it in production necessarily. There is more automation, like machines that do a lot of things these days that used to be done by humans. And as we open new factories around the world, no matter where that factory is, whether it be Cambodia, Bangladesh, or elsewhere, those factories are best-in-class. We're kind of taking the learnings that we've had from other countries and kind of continuing to improve them.

LM: Assuming that one day all of this tariff uncertainty eventually settles down, what do you think would be maybe some of the permanent shifts, or ways, in which your logistics and supply chain processes or operations could see changes?

Butler: Regardless of what happens, I think you'll see a lot less being sourced from China directly—around manufacturing in general, I think you're going to see that trend. For some companies, like furniture companies, that was a good strategy for them until there was a blanket 25% tariff put on them. So, suddenly, now they're in a country where it costs more to produce the product, and they have a 25% tariff. It makes things very difficult. We don't look at tariffs as a driver of our decision making. We certainly take it into account, but I will say that my estimation will be that there will almost be zero trees made in China for National Tree next year.

LM: Where will they be sourced from?

Butler: Other Asian countries or nations.

LM: That represents a major shift. Are you preparing for that now and talking and working with suppliers?

Butler: We started this process two years ago. The goal wasn't necessary to be out of China completely, but we started the ball rolling to get to that if we needed to. And at this point we feel like that that makes the most sense, just to kind of eliminate as much uncertainty as we can. Nearshoring would be something that we would love to do, and we're pursuing that aggressively as well. We want to have the most diverse, flexible supply chain for ourselves, but also for customers, so that they can rely on National Tree. I also work with and represent the Christmas Trade Group, and our is to engage with the administration and eliminate these tariffs. We have had good discussions with the administration, at Treasury, at the USTR, and the faith-based office in the White House. We've been educating them, and they have listened, and they've been great partners, great listeners. They didn't know that 15 million trees a year are bought in the United States, with, 85% of consumers in the U.S. celebrating Christmas with a tree—and 75% of those celebrate with an artificial tree. What we're trying to do is work with the administration on eliminating these tariffs. It's very difficult, if not impossible, to bring production back to the U.S., certainly with a decent price point. Our goal would be to work with the administration continue education and working with them, obviously, they're very smart people. Ultimately, we would like to have those tariffs on Christmas eliminated. And we think there's a strong case just because of, you know, the sanctity of Christmas and how important Christmas is to the consumer in America. We'll continue to make that case as we go here.

LM: If you were to move forward with domestic manufacturing, obviously it's incredibly expensive, as you noted. But aside from the actual facility cost, or the manufacturing plant costs, what are, biggest related cost factors?

Butler: Labor would be higher by magnitudes of 10-to-12x but then you still have to get the raw materials. And the raw materials just aren't available in the U.S. today. You'd still be, ultimately importing raw materials to make them here. In a much longer period of time, that could be overcome. But the cost differential, wouldn't necessarily go away.

LM: If a company were to China and source from other countries, does that impact anything in a material way, as you look at things like modal diversions, as well as freight rates, which are low at the moment, budgeting, or supply chain forecasting?

Butler: Freight rates are very low right now around the world. The purpose of the justification would be, for example, if the Hormuz Strait shuts down or the Panama Canal gets throttled, that you're not kind of beholden to any of these things. Our goal is to have a flexible and diverse supply chain to be able to get through any of that type of issue. We can't control tariff policy. For all of those things that we can't control, we have to try and figure out flexible mitigation strategies. We're not the only ones. Everybody's doing the same thing, but that that's kind of the path that we're on.

LM: Do you have equal parts of your freight moving through the spot market and contracts?

Butler: These contracts, in many cases, are not worth the paper they are written on since 2021. There has been such an extreme difference, or dislocation, between supply and demand. In 2021, there was way too much demand for the supply that was available, and then suddenly it switched. The ocean carriers made a ton of profit in 2021, but, of course, that has tailed off over the last few years. And this year, shipments are down, it is a tough business. We do like to have a mix of spot and contract rates as a little bit of a hedge.

LM: Is it sort of the same thing when you arrive on North American shores, in terms of your, trucking and drayage and intermodal service provider partners?

Butler: We have contracts in place, but at the end of the day we are getting very low rates, due to current market conditions [in the form of excess capacity and low rates].

LM: How do you view the federal government shutdown as it relates to logistics operations?

Butler: It's tough for everybody, mostly for the consumer, who's losing their paycheck for a while, and cash flow is tight. I don't think that's helping consumer sentiment, obviously, and hopefully it can be resolved and we can get back to normalcy soon.

LM: What are your key focus areas after preparing for Christmas sales, as it relates to your Peak Season?

Butler: People will ask us what we do in the offseason, after December, assuming things remain slow until October. We really do a lot during the “off” time. This year, I would say, by far, has been the most complex, difficult year, just purely because of how we work with some big customers, and some of their orders were changed in a radical manner. And then they waited a long time to place those orders. So, we had to switch between our own factory orders for ourselves and those orders. We had to switch from factory to different factory. We had to switch from country to country. We had to switch from East Coast to West Coast back to West Coast. So, it's been extremely challenging. But look, if you have a good freight forwarder and good partners, and a good team in Asia, and a good team here, you can get through anything—but it has definitely been a bigger challenge for us than most. The good news is it hasn't cost us anymore, because freight rates have been low, so we've been able to take advantage of that. I would say probably anyone in this business, or anyone in any business who ships from Asia to here, I would assume, has been hit been hit with similar issues. So, it's definitely been the most complicated, while I would say normal in terms of the ebbs and flows of the shipping season but it definitely has been an interesting year. That has been the case for some time. Things were shut down in 2020, 2021 saw massive demand and then containers went from $5,000 to $30,000, with an insane rush for containers and product leftover in factories. Each year has brought its own challenges. We will see how we go through this season and sell as much as we can and then start all over. The hope is that 2026 will be more normal, but I doubt it—and then we will deal with what comes up at that point.