Walmart asked Chinese suppliers to lower prices, aiming to absorb the new tariff burden at the supplier level rather than passing it on to consumers. The move is part of its strategy to maintain pricing power amid a value war with other retailers competing for cash-strapped consumers.
Bloomberg reports that the big-box retailer has asked Chinese suppliers, including those producing clothing and kitchenware, to reduce prices by about 10% per round of tariffs, likely shouldering the full cost of President Trump's duties. The report was based on information from people familiar with the matter.
The people said that few suppliers have complied with Walmart's request.
Here's more:
So far, few have acquiesced. Suppliers' margins are already razor thin due to Walmart's strategy of procuring goods cheaply in order to maintain its competitive advantage, according to the people.
For some, any reduction greater than 2% would see them make a loss, the people said. Others have had their own upstream vendors refuse requests to cut prices more than 3%, forcing manufacturers to consider purchasing some parts from Vietnam, according to one of the people. That move has raised concerns that the lower prices will come at the expense of product quality, the person said.
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Walmart initially requested price reductions from manufacturers when Trump's first round of 10% tariffs on goods from China took effect in early February, with the request for additional cuts coming later the same month when the US president threatened to double duties, said the people.
The report comes days after Trump doubled the tariff on Chinese products to 20%, up from last month's 10% tax. (Everything you need to know about tariff wars here.)
On Tuesday night, Trump addressed a joint session of Congress, in which he downplayed the growing trade war concerns:
"Tariffs are about making America rich again and making America great again. There'll be a little disturbance, but we're OK with that. It won't be much."
Trump noted:
"We inherited from the last administration an economic catastrophe and an inflation nightmare. Their policies drove up energy prices, pushed up grocery costs and drove the necessities of life out of reach for millions and millions of Americans."
Last month, Walmart shares plunged on a dismal earnings forecast for the year that did not include the potential impact of tariffs. The retailer did warn about the uncertain geopolitical landscape and elevated interest rates.
Other top US retailers have warned about the trade war. Target warned on Tuesday that tariffs and a soft consumer environment plagued its full-year outlook. The CEO told investors during a call that he is having discussions with vendors.
