Tariffs raise costs, but price hikes stay limited
Major retailers like Walmart, Home Depot, and Coach parent Tapestry have reported steady consumer demand, even as President Donald Trump’s steep tariffs begin to bite. Despite warnings earlier this year, retail executives say the actual impact has been more muted than expected, thanks to strategic sourcing and pricing decisions.
Walmart CFO John David Rainey noted the company raised prices selectively while absorbing higher costs in other areas. “We’re certainly trying to keep prices as low as we can,” he told CNBC. Some categories saw increased prices, but others remained stable or were discounted further.
Retail analyst Scot Ciccarelli from Truist said most retailers have successfully minimized the fallout. “They’ve all talked about substantial mitigation efforts,” he said, citing diversified sourcing and negotiating with suppliers. While tariffs are contributing to rising costs, companies are moving cautiously to avoid spooking consumers.
Consumer spending shows resilience
Retailers continue to see steady spending, particularly among middle- and higher-income shoppers. Walmart saw strong sales in fashion and discretionary items, including apparel and shoes. Even luxury items like Coach’s $695 Kisslock handbag sold out quickly after its July release, according to Tapestry CEO Joanne Crevoiserat.
Still, price sensitivity among lower-income consumers is increasing. Walmart CEO Doug McMillon acknowledged more pronounced behavior shifts among these groups. “We see more adjustments in middle- and lower-income households,” he said, especially as inventory is replenished at post-tariff pricing levels.
Home improvement chains like Home Depot and Lowe’s also saw better sales in July, though executives cautioned against reading too much into the short-term uptick. Factors like weather and interest rates are influencing consumer behavior more than tariffs in some cases.
Others, like Crocs, expressed concern. CEO Andrew Rees described the second-half outlook as “concerning,” with lower traffic and fewer purchases even at discount outlets.
Mitigation tactics help buffer tariff effects
To blunt the impact of tariffs, many retailers acted early. Walmart and Target imported goods ahead of tariff deadlines and stocked up on high-frequency items. Sharkninja CEO Mark Barrocas said his company raised prices “very carefully” and even rolled some back after consumer feedback.
Home Depot CFO Richard McPhail said the company aims to import no more than 10% from any single country by year-end, increasing domestic sourcing to reduce risk. Meanwhile, Tapestry warned that tariff costs would total $160 million this fiscal year, cutting into profit even amid sales growth.
Trump’s tariff policy appears more settled than in spring, but some duties could still rise. Tariffs on China, which had surged to 145%, were temporarily rolled back to 30% last week, creating further uncertainty.
Target offered a wider-than-usual earnings outlook to account for trade volatility, acknowledging the challenge of forecasting costs amid shifting policies.
Strong brands and new revenue streams help
Some companies have used brand strength and diversified businesses to cushion the blow. Home Depot and Lowe’s increased their focus on home professionals, acquiring companies like SRS Distribution and Foundation Building Materials to secure steady demand.
Walmart benefited from its growing ad business and third-party marketplace. Advertising revenue jumped 46% year over year, and marketplace sales rose 17%. Rainey emphasized these higher-margin segments help smooth earnings volatility.
Coach, now priced higher with fewer discounts, can absorb input cost increases more easily, said CEO Todd Kahn. Meanwhile, Birkenstock reported no pushback from consumers after July 1 price hikes due to tariffs.
Brands with weaker demand or smaller scale are more vulnerable. Crocs reduced back-half orders and took back unsold inventory to refresh styles. Target’s margins were hurt by canceled orders, showing how retailers lacking flexibility may struggle.
