NEW YORK – An escalating trade war between the U.S. and China could mean higher prices on a broad array of products from toys to clothing. But some retailers will be less equipped to handle the pain than others, leaving consumers to carry the load.
Analysts said big-box giants like Target and Walmart who marked their latest quarters with strong performances are best positioned to absorb the higher costs because of their clout with suppliers. They are also taking a judicious approach to price increases to lessen the effect.
The losers will be the ones that have been struggling all along — the mall-based clothing stores and others that sell commoditized products like basic sweaters or that don’t have the financial wherewithal to absorb extra costs.
Consumers, as well as most retailers, had been left largely unscathed by the first several rounds of tariffs that the U.S. imposed on China because they mostly focused on industrial and agricultural products. But that began to change when items like furniture saw an increase in tariffs to 25% two weeks ago.
Retailers will absorb the extra costs when those products arrive in U.S. ports in June. But now the Trump administration is preparing to extend the 25% tariffs to practically all Chinese imports not already hit with levies, including toys, shirts, household goods and sneakers.
Cowen & Co. estimates shoppers could see price increases of as much as 10 to 15% across all goods imported from China, which would mean an incremental cost of $100 billion or more.
Retail executives from a wide array of stores from Walmart to Kohl’s said on conference calls with analysts this week that they remain optimistic about the financial health of the consumer, citing low unemployment and a strong economy. But shoppers could balk at paying higher prices on things they don’t need, especially those in the lower income bracket who are sensitive to any cost increases.
Analysts believe shoppers’ habits will change if the trade wars escalate and the next round of hikes stay in place for a while.
“It will change behaviors and change how much people buy and where people do that buying,” said Neil Saunders, managing director of GlobalData Retail.
Greg Petro, CEO of First Insight, a technology firm that advises retailers and brands on pricing decisions, believes that if prices rise because of the new tariffs, they will be permanent — but not all products will be hit the same way. For example, home decor is less sensitive to price increases than big furniture; women’s clothing is more sensitive to price hikes than men’s.