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Tariffs with China will cause Walmart to raise prices, company says

Posted at 4:46 PM, May 16, 2019
and last updated 2019-05-16 16:47:50-04

Walmart, America's largest retailer, said Thursday it will raise prices on some products as a result of the Trump administration's tariffs on Chinese goods .

"We're going to continue to do everything we can to keep prices low. That's who we are. However, increased tariffs will lead to increased prices, we believe, for our customers." Walmart chief financial officer Brett Biggs told reporters on a call after the retailer reported earnings for the first quarter of 2019.

Biggs did not say which items will become more expensive at Walmart. He noted, however, that Walmart's merchant teams have been developing strategies to mitigate cost increases and working with its suppliers to manage prices.

Walmart has less exposure to China than many other retailers because more than half of its sales come from groceries. Most of the food Walmart sells comes from the United States and other regions such as South America.

But Walmart still imports 26% of its merchandise from China, UBS analyst Michael Lasser estimated in a report earlier this week. Target imports 34% of its products from China. Other companies, including sporting goods, auto parts and furniture sellers, have even greater exposure to China.

Last week, the Trump administration hiked tariffs on $200 billion of Chinese-made goods . The tariffs mostly hit industrial materials and component parts, but also applied to luggage, hats and gloves for US importers.

Additionally, the United States has started a formal process to put new tariffs in place on the remaining exports coming from China that aren't already taxed. That could make a number of goods, including toys, clothes and sneakers, more expensive for American consumers .

Retailers depend heavily on China in their supply chain. China accounted for about 41% of all apparel, 72% of all footwear, and 84% of all travel goods imported into the United States in 2017, according to a letter several retail trade groups sent to the Trump administration last week.

Other retailers have also recently warned that tariffs will hit their businesses.

On Wednesday, Macy's said it will raise prices on some merchandise because of the trade war with China.

"If the potential fourth tranche of tariffs is placed on all Chinese imports, that will have an impact on both our private and our national brands," CEO Jeff Gennette told analysts on an earnings call. He said it would be hard for Macy's to "find a path" to avoid increasing prices on consumers.

Walmart is surging

Tariffs pose an obstacle for Walmart, one of the strongest retailers in the United States.

During its first quarter, Walmart's sales at US stores open at least a grew 3.4% compared to the same time last year. That marked Walmart's fourth-straight quarter of sales growth above 3% at stores open at least a year.

"The US business continues to benefit from a healthy economic environment," CFO Biggs said in a statement earlier Thursday.

Walmart's online sales growth clocked in at 37% last quarter, a tick down from the 40% rate online sales grew last year. Walmart has ramped up its online grocery business and acquired trendy fashion brands such as Bonobos and Eloquii. Online grocery pickup and delivery buoyed online sales, according to the company.

"We're pleased with how we started the year," CEO Doug McMillon said. "We have a stronger foundation in place with our stores, and we're making good progress in e-commerce."

One analyst Thursday attributed Walmart's strength to its decision to continue lowering its prices, despite higher costs and investments in remodeling stores and building out its online infrastructure.

"Shoppers are now becoming more price sensitive, which plays into one of Walmart's core strengths," Neil Saunders, managing director at GlobalData Retail said in a note to clients.