The trade war came to Walmart, Target and Macy’s. American shops and consumer brands avoid serious damage due to prolonged US-China trade clashes. But tariffs have begun to bite the retail sector.
Earlier this month, the Trump administration raised tariffs to 25% of Chinese goods worth $ 200 billion. Rates apply to consumer products such as luggage, mattresses, bags, bicycles, vacuum cleaners and air conditioners. In addition, the Trump administration has threatened to increase Chinese import tariffs to $ 325 billion in additives – including toys, clothing, shoes and consumer electronics.
Although large retailers have developed strategies to blunt the impact of tariffs so far, they warn that trade wars have an impact on business. The buyer will bear these costs.
Walmart, Target, Home Depot, Kohl’s, Macy’s (M) and others said over the past week
“Tariffs have forced to change their financial outlook, overhaul carefully prepared supply chains, or consider raising price tags for customers. “We are concerned about tariffs because they lead to higher prices for everyday products for American families,” Target chief executive Brian Cornell told analysts on Wednesday.
Home Depot (HD) said the new 25% tariff would add to the cost of $ 1 billion. Kohl’s (KSS), which imports around 20% of its merchandise from China, lowered its guidance for this year in part because of the increase in fees from tariffs.
Retailers argue that the higher costs of tariffs will force them to make difficult decisions: Take prices for consumers or take costs and profit. Most said they would raise prices, although it is not clear when consumers might see higher costs on shelves or how much.
“We can assure you that any increase in shoe import costs has a direct impact on American shoe consumers,” wrote Nike (NKE), Adidas (ADDDF), Foot Locker (FL) and DSW parent Designer Brands (DBI). letter to the administration on Monday. The proposed tariff for shoes coming from China will be a “disaster” for consumers and the footwear industry.
AutoZone CEO (AZO) William Rhodes said the company would raise prices for consumers if tariffs increase the cost of purchasing auto parts.
“If we really experience higher costs, it is our intention to continue higher costs to our customers,” Rhodes told analysts on Tuesday.
Walmart (WMT) also said it would raise prices on some products as a result of Trump’s administrative rates on Chinese goods. “We will continue to do everything we can to keep prices low. That is us. However, the rate increase will cause price increases, we believe, for our customers,” Walmart chief financial officer Brett Biggs told reporters by telephone. after last week’s corporate earnings.
Rates are the main focus during the retailer’s latest wave of income. Twenty-nine retailers in the S & P 500 mentioned “tariffs” for call analysts over the past three months, compared with only seven during the same period last year, according to FactSet analysis.
However, the Trump administration rejected the effect of tariffs on buyers.
Finance Minister Steven Mnuchin said Wednesday at a House committee meeting that he did not expect there would be “significant costs” for consumers. “I don’t need to agree with that,” Mnuchin said when pressed by Deputy Democrat Cindy Axne from Iowa about whether the price of consumer goods would be higher.
With a team of global and large-scale suppliers, Walmart, Target (TGT) and other large-box retailers are in a better position than most companies to handle tariffs.
Cornell, CEO of Target, said that various retailer merchandise is “competitive advantage” and allows it to balance the impact of tariffs “in a way that is not available to single-category retailers.”
Nevertheless, an additional 25% tariff on all goods from China would eliminate any growth in retail profits over the next 12 months, according to Greg Melich, an analyst at Evercore ISI.
Analysts believe that retailers have bought most of their merchandise for the coming months. But the uncertainty surrounding trade prevents them from planning their stocks for the winter holidays, said Simeon Siegel, an analyst at Nomura Instinet.
Companies “live on the edge of a tweet trying to plan for the long term,” he said. Rates are timely for retailers already experiencing online disruption and rising labor and transportation costs.
Chinese labor and factories are key links in the supply chains of major US retailers. Companies find it difficult to quickly change their complex supplier networks.
According to UBS, Lasser, Walmart imports 26% of its goods from China, while Target imports 34% of its products from China. Other companies, including sporting goods, auto parts and furniture sellers, are even more exposed to China. Dick’s Sporting Goods (DKS), for example, imports 51% of its goods from China, while Bed Bath & Beyond (BBBY) imports 53% from China, according to Lasser.
Shoe companies are closely related to China. The country accounts for 72% of all shoes imported to the United States in 2017, according to data from retail trade groups.
China is for us a “country of supply and a major consumer market,” said Nike in its annual report on securities.
“Footwear is a very capital-intensive industry, which takes years of planning to make procurement decisions, and companies can not just move plants to adapt to these changes,” they wrote. companies in their letter to the administration.
There may also be unexpected winners in retail rates: discount stores such as TJMaxx, Ross Stores (ROST) and Ollie’s Bargain Outlet (OLLI).
Ollie’s, for example, thinks it can benefit from the administration’s tariffs on Chinese products. Indeed, more and more companies will have additional stock or cancel orders as part of their race to import goods from China.
“We have the opportunity to jump on this opportunity,” said Ollie Butler, CEO of Ollie in December.
Ernie Herrman, chief executive of TJX (TJX), said on Tuesday that “market disruptions,” such as tariffs, create “buying opportunities” for his company.