What’s News in Earnings: Retailers Scramble to Respond to Tariffs
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What challenges are retailers facing due to tariffs?
Executives are navigating supply chain disruptions and potential cost increases as a result of tariff policies, in addition to fielding concerns about American consumers and whether or not a weakening economy could shrink household budgets and eventually put a dent in sales. Though the complete impact of tariffs is yet to be determined, the policy is now facing legal challenges in federal courts, many retail executives are scrambling to respond to the new landscape of global trade. To break down what we learned from retailers in the first quarter, we're here with Suzanne Kappner. Suzanne writes about the retail industry for The Wall Street Journal here in New York. Suzanne, thanks for joining us today.
How are retailers responding to supply chain disruptions?
Thanks for having me. So what did we hear from retailers about how they are responding to tariffs and the related challenges this earnings season? What stood out to you? Well, retailers have been working really hard to offset the impact of tariffs, mostly by diversifying their supply chains. They are all moving production out of China into other lower tariff countries like Vietnam, Bangladesh. Some are even trying to move minimal production back to the U.S., but that's very small. Macy's, for instance, said it had delayed or canceled some orders out of China. And Gap said they're actually planning to double the amount of American-grown cotton it buys. So they're working with a variety of levers. They're also trying to wring some concessions out of their suppliers. and some are looking at price increases.
That's one big question when we talk about retail earnings, possibly a big question as retail customers as well who shop at these stores, whether or not we're going to see retail companies raise prices for customers on store shelves as a result of tariff-related costs. A few companies have already opted to do this. Walmart has said it plans to raise prices this month, maybe early this summer as well. Target has mentioned this might be on the table. What have other retail executives told us about what might happen with prices for shoppers?
Are retail prices going to increase because of tariffs?
Yeah, it's really been across the board from Walmart to Ralph Lauren. Companies are talking about price increases, but these are not across the board hikes. They're what companies describe as surgical. So they are looking at price elasticity of products and certain products maybe can bear an increase while others can't. They're afraid to Demand will dry up if they raise prices, let's say on a T-shirt that's like a very commoditized item, but maybe a handbag that is like hot and in demand, they have a little more pricing power. So this is the exercise companies are working on going through their inventory and seeing where they can raise prices, where they can't. One notable exception is Gap, which said they have no current plans to raise prices in any meaningful way. They're concerned that their consumer is a middle market sort of moderate consumer, and they don't want to price themselves out of their consumer's reach.
You've written about some of the different ways that retail businesses of all sizes have scrambled to respond to what can be a really rapidly shifting trade landscape. What are some of the different tactics that retailers are trying to adjust in response to all of these tariff-related challenges?
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