Walmart announces price increase due to tariff costs

Walmart announces price increase due to tariff costs

Walmart, the world's largest retailer, has warned that it is not immune to President Donald Trump's tariffs. The company plans to raise prices on some items as Trump's global trade wars drive up the company's costs.

Price increases announced

“We will do our best to keep our prices as low as possible, but given the magnitude of the tariffs, even with the reduced prices announced this week, we are unable to fully absorb the pressure as retail margins are very thin,” Walmart CEO Doug McMillon will say in a conference call with analysts on Thursday. Walmart had released several prepared statements from executives ahead of the conference.

The price increases are expected to begin later this month. "I'm concerned that consumers will see higher prices soon. They'll probably notice this towards the end of the month and certainly a lot more in June," Walmart Chief Financial Officer John David Rainey said in a interview with CNBC on Thursday.

Background to the tariff increase

Many companies have raised prices to mitigate costly consequences of 10% across-the-board tariffs on all products entering the United States, as well as higher taxes on Chinese goods. Washington and Beijing reached an agreement this week to reduce those tariffs, but the United States continues to impose a 30% levy on most imported goods from China.

Tariffs have already driven up prices for mattresses, toys, strollers and other products. The Federal Reserve announced last week that tariffs had caused prices to rise 0.3% this year. Some companies are increasing prices across their entire product range, while others are adjusting specific items in their catalogs. Many companies simply choose to remove products that result in high price shocks rather than try to sell at prices that customers don't want to pay or that are undercut by competitors.

Political Implications for Walmart

Price increases could put Walmart in an awkward position with Trump. Companies typically communicate why they need to raise prices, but Trump has turned this into a political risk. The White House has aggressively attacked Amazon, after the company considered reporting the additional costs incurred by tariffs on some products. Trump contacted Amazon founder Jeff Bezos to discuss the site's plans, and White House spokeswoman Karoline Leavitt called Amazon's plans a "hostile and political act" while holding a picture of Bezos to the cameras. Trump also threatened Mattel, after the toy maker announced it would raise prices because of tariffs, saying in the Oval Office it could impose a 100% tariff on the company's toys and recommending that the company remove its CEO.

Walmart in the midst of the trade war

Despite tariffs and fears of a recession, Walmart remains strong in the United States. Sales at stores open at least a year rose 4.5% last quarter, driven by the company's grocery business. Walmart said it made gains in wealthier households last quarter.

Walmart shares ( WMT ) rose 2% in premarket trading. Walmart's investments have helped the company attract more high-income shoppers in recent years. Historically, Walmart's primary customers have been low- and middle-income Americans.

Although considered a traditional retailer, Walmart has been one of the strongest retailers in America for several years. It has successfully navigated the transition to online shopping and built a competitive online business that rivals Amazon.

Analysts believe the company can use its size and broad supplier base to keep prices low for customers even as tariffs increase costs. This could help Walmart gain market share over competitors in the coming months.

Walmart is "well positioned to navigate tariffs" given its deep relationships with suppliers, low prices and other strengths, according to Bank of America analyst Robert Ohmes. The company sells fewer products from China - about 15% of its total items - than most retailers, so it is less affected by tariffs.

About 60% of Walmart's products are groceries, mostly sourced domestically.

The challenges of the retail industry

The tariffs pose a huge challenge to the retail industry. Most toys, baby items, sneakers and many other everyday products are made in China, and companies are in the process of relocating production. Companies are raising prices for consumers, cutting products and taking other measures to minimize the impact of tariffs.

Last month, the CEOs of Walmart, Target and Home Depot met with Trump to discuss the impact of the tariffs. Walmart CEO McMillon, who has developed a friendly relationship with Trump through meetings at Mar-a-Lago and several mutual friends, openly told the president that the trade war with China has already begun to disrupt the supply chain and that the situation will only get worse by the summer, as CNN previously reported.

Walmart said Thursday that retail uncertainty is making it difficult to plan for the future. “The ambiguity that exists in today's dynamic business world makes it extremely difficult to predict the very near future.”