Dive Brief:
- "Increased tariffs will lead to increased prices we believe for our customers," said Walmart CFO Brett Biggs on a call with reporters last week.
- Walmart imports 26% of its products from China, according to UBS analyst Michael Lasser, who told CNBC home furnishings are a particularly vulnerable category.
- Biggs said price increases would be item and category specific and did not offer a timeline for when consumers might see higher prices. "From a competitive standpoint, we’re just not going to talk about it item-by-item and category-by-category," he said.
Dive Insight:
The increase in tariff rate and the potential impact of the fourth list of affected imports on consumer goods have come at a particularly bad time for Walmart. The company announced just days ago it would move to default 1-day shipping in Phoenix, Las Vegas and Southern California.
Between lightning-fast fulfillment, tariffs on apparel, footwear, electronics and more, plus Walmart's promise to be the "low-price leader," which Biggs restated on the call — something's got to give.
Biggs said work to mitigate tariffs with suppliers is still ongoing. Since the start of the trade war, retailers and importers have negotiated new terms and processes with Chinese suppliers to lower operational costs, avoid tariffs or even share the burden, but industry experts say these opportunities, at least for the tranche three tariff list which rose from a rate of 10% to 25% last week, have been exhausted.
"Retailers have done everything they can up to now, but when we get to 25% on this final fourth tranche, if we go there … It’s going to be difficult for any retailer in the country to avoid passing along price increases to consumers," said National Retail Federation President Matthew Shay on CNBC Tuesday. "There’s just not enough leverage and wiggle room left to make that happen," he added.
Blake Shumate, chief operating officer of American Global Logistics, told sister publication Supply Chain Dive he agrees with that assessment.
"We've seen since September when the 10% came out, that's all anyone did —kind of go through all these different strategies to look at new ways to change the development and lower cost of the product. But 10% was a lot and we’ve been doing that for nine months if not longer. It has to be exhausted," said Shumate.
What may end up suffering in the long run for retailers in general, not specifically for Walmart, is product selection and in-stock status.
Shumate said retailers with hyper-fast fulfillment standards will have to be even more conscientious about what they bring into the U.S., especially if these tariffs last through the summer. Fast fulfillment requires products to be near the delivery locations. When a new tax is levied on products, price and availability are the only levers retailers like Walmart have left to pull to maintain margins. If the retailer still wants to compete on price, a dip in selection of certain challenging product categories may be the result.
