The Supply Side: Tariffs create big uncertainty for retailers, suppliers

Tariffs are a big concern for retailers, particularly large operations like Walmart, Target and Dollar Tree which import goods from abroad. So when the Trump Administration invited some of their leaders to the White House to discuss their concerns on April 21 three retail giants accepted.

President Donald Trump announced a series of tariffs on dozens of countries on April 2. On April 9, he paused the levy for 90 days, except for those imposed on China, which he raised to 145%.

Walmart, Target and Home Depot CEOs attended the recent White House meeting. Each released similar statements thanking the Trump Administration for a productive meeting, listening to their viewpoints and the opportunity to discuss a path forward on trade. The company execs also said they expect the dialogue to continue.

Walmart CEO Doug McMillon recently told investors that tariffs are nothing new for the retail giant, and noted that two-thirds of the goods Walmart sells are made, grown or assembled in the U.S.

What is different this time is that fresh produce sourced by Walmart, such as avocados, cucumbers, tomatoes, citrus fruits, pineapple and bananas, come from Mexico and Central America, and those prices are already starting to increase because of tariffs. Walmart recently raised the prices on avocados from 88 cents each to $1 each in some stores as of April 22. Limes went from 25 to 50 cents each, and the cost for fresh berries also increased.

McMillon said one high-ticket item he is concerned about is patio furniture that is in stock for the summer. He said purchasing more expensive discretionary items could be put on hold by consumers who plan to reduce spending during the tariff-induced economic uncertainty.

Even though just one-third of the goods Walmart sells in its U.S. business are imported, China and Mexico are the two most significant supplier countries. Target relies more heavily on imports than Walmart because of its focus on apparel and home goods products that are mostly manufactured offshore. Footwear, which is sold by Walmart and Target, is another category expected to be significantly impacted by tariffs against China.

The National Retail Federation (NRF) has been vocal about the tariff impact on consumer spending, given that inflation has kept prices elevated since the pandemic.

“More tariffs equal more anxiety and uncertainty for American businesses and consumers,” said David French, NRF’s executive vice president of government relations. “While leaders in Washington may not care about higher prices, hardworking American families do.”

Boyd Evert, the CEO of Bentonville-based HRG, said uncertainty about tariffs is definitely a concern for retailers, suppliers and consumers. Evert works with suppliers of all sizes who sell into retail.

“No business likes uncertainty, and it’s a difficult time for a retail supplier today,” Evert said.

He said there is no way to tell where the tariff burden will land, but he expects retailers, suppliers and consumers will each bear some of the brunt.

“I can’t imagine the consumer not bearing the lion’s share of the cost,” Evert said. “For retailers and suppliers, they will have to raise prices and possibly reduce demand, or if they try and eat too much of the tariff, then they risk their profitability declining. There is no good choice for how to cover the increased costs of goods.”

It will be different for each business, but he said every supplier will have to figure out how much of the cost burden they can pass on to customers and how much they absorb.

“I think this is probably going to be a constantly changing and moving target as we move forward,” Evert said.

Another troubling concern is the ability to accurately forecast demand, given that there is no history to consider. Without accurate forecasting, suppliers run the risk of over-supplying retailers relative to demand, and that is a costly mistake.

“We have no baseline for budgeting promotions like we have typically had in the past,” Evert said. “Suppliers usually fund a promotion — lower price — with a retailer in exchange for a lift in sales volume based on the previous year’s sales history. But given the uncertainty in demand and the cost of goods impacted by tariffs, the past years’ results do not apply. We are in uncharted territory given the scope and scale of the tariffs floated and already in place.”

He said retailers also are having to determine price elasticity — how much a price can be raised before demand is reduced. Also, there is inventory already in route or in warehouses ahead of the tariffs, with retailers thinking about how they are going to sell it all if consumers reduce spending.

He said some retailers are going to be cautious with ordering and probably run fewer promotions, and some will take more risks. Evert said suppliers and retailers do not want to get caught with excess inventory if the economy is slowing.

Evert also expects there will be a period of adjustment for suppliers who source parts from China. While many companies worked to diversify supply chains after the pandemic, most electronic components still come from China or Taiwan. That could impact everything from smart kitchen appliances, electronics and power tools.

In his work with suppliers, Evert said he is seeing retailers cut some orders ahead of the tariffs and other cases where items have been shipped but the tariff has not yet been applied. He expects suppliers and retailers will have to work out the tariff sharing arrangement when it reaches U.S. shores.

He said there is no roadmap for suppliers and retailers heading into the back half of this year. He expects they will proceed cautiously with inventory orders also while hoping consumers keep spending.

Evert’s advice to suppliers is to communicate with their retail partners about tariff pressures. He said it’s important to keep the dialogue open because retailers and their suppliers have challenges ahead with forecasting, inventory and pricing strategies.

Editor’s note: The Supply Side section of Talk Business & Politics focuses on the companies, organizations, issues and individuals engaged in providing products and services to retailers. The Supply Side is managed by Talk Business & Politics, and is sponsored by HRG.