Shoppers walk through the Fashion Center at Pentagon City Mall on February 2, 2024 in Arlington, Virginia.
Saul Loeb | AFP | Getty Images
For retailers and consumers who are finally feeling some relief from inflation, President-elect Donald Trump’s tariff proposals have created new uncertainty about how prices might change during his presidency, analysts said Wednesday.
NBC News expects Trump to win a decisive second term and said during the presidential campaign that he would impose tariffs of 10% to 20% on all imported goods, with tariffs as high as 60% to 100% on goods from China. % tariff.
Businesses, retail trade groups and industry analysts have warned that the move could drive up prices on items ranging from sneakers to party supplies that Americans buy.
“Implementing sweeping tariffs on consumer goods and other non-strategic imports would amount to a tax on American households,” Matthew Shea, chief executive of the National Retail Federation, said in a statement Wednesday. “It would drive up inflation and prices. rise and lead to unemployment.”
Earlier this week, the NRF released a study on the impact of Trump’s proposed tariff increases, saying it would lead to “dramatic” double-digit percentage increases in prices across nearly all six retail categories reviewed by the trade group. rise. These categories include clothing, footwear, furniture, home appliances, travel items and toys.
For example, the analysis found that clothing costs could rise by 12.5% to 20.6%.
The CEO of Elf Beauty, which relies heavily on China for its beauty products, told CNBC on Wednesday that the company may be forced to raise prices if the proposed tariff hike goes into effect.
“We do have pricing power. If we think we need to take advantage of pricing, we will do so,” said Elf Chief Executive Tarang Amin. “It’s going to depend on how we feel about the tariffs. It depends on the magnitude of the tariffs.”
Neil Saunders, managing director at GlobalData, said in a research note on Wednesday that higher tariffs would cause “huge headaches” for retailers, who are likely to pass those costs on to consumers. The result could be even weaker spending by already price-conscious shoppers.
“Despite Trump’s claims to the contrary, tariffs are paid by the company or entity that imports the goods, not by the country itself. This means the cost of purchasing the product from overseas, whether directly or as an input to manufacturing , will rise sharply,” he said. Sanders.
“Given trade between Chinese manufacturers and U.S. retailers, strict tariffs will mean that retailers will either take a huge profit hit initially or be forced to raise prices, which will fuel inflation and depress retail volumes,” he said. increase.
Sanders said that over time, supply chains would adapt to this change in tariff policy, but that it would be “incredibly disruptive” in the short term.
“The small hope is that the tough talk on tariffs is more of a negotiating tactic and the eventual implementation will be relatively mild in scope,” he said.
Companies most vulnerable to rising tariffs
Whether retailers will be affected by the proposed tariff increases will depend on the origin of their goods and whether they have the pricing power and popularity to boost profit margins or raise prices.
in a Bank of America Retail analyst Lorraine Hutchinson said the research report showed Five or less, Crocs, Skechers, Amer Sports and American Eagle Outfitters The risk is higher because 20% or more of their goods come from China. As a result, she downgraded the Five Below stock to underperform from neutral, saying the company does not have “the pricing power to mitigate high tariffs.”
On the other hand, companies like Bath and body care services Hutchinson said the company sources about 85% of its products from North America, making it less vulnerable.
She said Trump-backed corporate tax cuts could benefit retailers, but higher tariffs would outweigh those savings.
Deep discount stores, e.g. dollar treeThese companies are also at risk because their fixed-price-point business models make it difficult to pass on higher prices to customers, said Peter Keith, senior research analyst at Piper Sandler. The store sells non-essential items such as toys and party hats, with many items imported from China and priced at $1.25. That means the company needs to either absorb higher costs or change its pricing model entirely, he said.
Bank of America also downgraded its rating Yeti Holdings Downgraded to Neutral from Buy due to its higher exposure to China. However, unlike Dollar Tree, its fan following and higher profit margins may give it enough of a cushion to absorb cost increases or raise prices.
Piper Sandler’s Keith noted that Yeti’s 20-ounce glasses typically sell for $35, but the company’s profit margin on the product is about 60 percent.
Additionally, Yeti and other companies are already working to diversify their supply chains and move manufacturing outside of China to reduce reliance on the region and its risks. Yeti has pledged to move about half of its production outside of China by the end of 2025.
CEO Amin said Elf has taken a similar approach.
“Back in 2019 when the 25% tariffs were imposed, almost 100% of our production was in China,” Amin said of the tariff hikes implemented during Trump’s first presidential term. “We’ve been diversifying, so we have supply in other parts of Asia, the United States, Europe. So now less than 80% of our supply comes from China, and I expect it will be a little less.” There will be even less development in the future. ”
Part of Elf’s value proposition is its ability to offer high-quality products at discounted prices, but Amin said he’s not worried about consumers buying at reduced prices if the company ends up raising prices. He mentioned its popular lip oil, which sells for $8, and its closest equivalent: Dior’s Lip Gloss Oil, which sells for $40.
“I even told our team, why are we pricing it at $8? We should be pricing it at $10,” Amin said. “So maybe I’ll get the opportunity now, but we’ll see.”
More sticker shock?
For consumers, tariffs could have a bigger price hit on purchases ranging from car repairs to toys as inflation cools. Some companies, including automatic zonehave told investors they will raise prices to cover the additional costs.
“If we impose tariffs, we will pass on those tariff costs to consumers,” AutoZone Chief Executive Philip Daniele said on an earnings call in late September. He said the company typically raises prices before tariffs take effect.
Thanks to the tariffs, customers can also pay more for a six-pack of beer, a bottle of Scotch, or even a pack of Oreos.
Analysts at equity research firm TD Cowen identified a number of companies at risk, including constellation brand, Produces Corona Extra and Modelo Especial beers; liquor company Diageo, Importing tequila from Mexico and Scotch whiskey from Scotland; and Mondelēz, The company produces some cookies and snacks in Mexico.
Matt Priest, executive director of the National Footwear Distributors and Retailers Association, said if Trump’s proposed tariffs go into effect, adult and children’s shoes will also be more expensive. Nike, Walmart and other members.
He said that about 99% of all footwear sold in the United States is made overseas, and even with cost penalties, it would be difficult to move much of the production back to the United States.
“We also doubt that there is a way to find a way to produce 2.5 billion pairs of shoes in the United States every year,” he said.
“Inflation is coming down,” he said. “When consumers are telling us all politically and from a consumer perspective, then turning around and pulling on one of the inflation levers, which is additional tariffs, is going to be counterproductive. Viewpoint: ‘We don’t want higher prices.’
About The Author
