An escalating trade war with China is looming over the U.S. retail sector. President Donald Trump has imposed tariffs on hundreds of billions of dollars worth of imported goods, and he's threatening to impose even more.
Tariffs are import taxes levied on goods and paid for by the company that imports them. But, in general, the added costs get passed on to consumers -- at least, as far as the sellers can do so. These taxes lead to some combination of higher prices and lower profits, or to companies seeking out other non-penalized sources from which to purchase those goods. But it's not always possible to find competitive alternatives.
Given the variety and large quantities of made-in-China goods that Best Buy (BBY 1.11%), Target (TGT -0.69%), and Walmart (WMT 0.63%) sell, it's natural that executives from all three companies addressed the tariff issue in relation to their most recent earnings reports.
Prices are going to increase on some items at Target due to Tariffs. Image source: Target.
What are the CEOs saying?
While Best Buy CEO Hubert Joly did not try to pretend that tariffs haven't affected his company's profits, he took a relatively optimistic view in a conference call on earnings, and generally downplayed the issue.
First, let me say that the administration has so far done a very good job of minimizing the impact of tariffs on U.S. consumers by limiting the number of consumer products on the tariff list. They've done this in part by taking input from companies like us. And so far, we've been able to minimize the impact of these tariffs by employing a number of mitigation strategies, including by buying products ahead of the tariffs being implemented and by working with our vendors.
Target CEO Brian Cornell was more direct about how tariffs will hit consumers during his company's earnings call. And of course, he too pointed to his company's intention to do what it can to ease the impact on its customers' wallets.
"As a guest-focused retailer, we are concerned about tariffs, because they lead the higher prices on the everyday products for American families," he said. "Our team continues to monitor trade negotiations and develop contingency plans to help mitigate the impact of tariffs on our guests and on our business."
Cornell also laid out how Target has managed the issue. Those comments sound a bit more like what Joly said.
It's important to note that Target's multi-category portfolio remains a competitive advantage. When there are external impacts to one business area or category, we're able to balance the impact across our business in ways not available through a single-category retailer. And as you've seen in our recent results, the team has been able to manage through last year's tariffs with minimal impact. And we have plans in place to mitigate the impact of additional tariffs already scheduled for next month.
Walmart did not mention tariffs in the statements it released along with its first-quarter earnings report. However, CFO Brett Riggs did comment on the issue around the time of the report's release, and CNBC reported on his remarks.
"We want to manage margins with customers and shareholders in mind. We have mitigation strategies that have been in place for months. But increased tariffs will increase prices for customers."
Bottom line: Tariffs are bad for U.S. consumers
No company would come out and say that it lacks a plan for dealing with the impact of tariffs. All three of these retail leaders are doing what they can to minimize their impact on consumers, but the reality is that there are only so many levers they can pull to manage the issue.
More tariffs will mean higher prices for American consumers. The impact won't be universal, but even the biggest retailers won't be able to avoid it.
