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MarketScreener Homepage  >  Equities  >  Nyse  >  Target Corporation    TGT


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Target Tells Its Suppliers to Handle Tariffs Costs

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09/04/2019 | 04:20pm EDT

By William Mauldin and Sarah Nassauer

New tariffs on consumer goods from China are forcing retailers to find ways to minimize the impact on shoppers, including sourcing goods elsewhere and trimming costs.

One strategy embraced by retail giant Target Corp.: Get someone else to foot the bill.

Days before new tariffs went into force Sept. 1, Target sent a letter to suppliers saying that it "will not accept any new cost increases related to tariffs on goods imported from China," according to a memo signed by Mark Tritton, the retailer's chief merchandising officer.

Target and other store chains had previously warned the U.S. government that consumers would be on the hook, with higher prices at checkout.

"The extent of the tariffs on consumer products suggests that it is likely that the tariffs will lead to price increases on certain items," Walmart Inc. said in comments to U.S. Trade Representative Robert Lighthizer's office in June.

At the time, Target made the same point.

"Simply put, additional tariffs on these products will require new families to spend more or make trade-offs about which products they're able to purchase for their families," Target's Mr. Tritton said in a June letter to Mr. Lighthizer.

To investors and suppliers, Target, Walmart, Dollar Tree Inc. and other retailers that are large importers of Chinese goods have signaled they are thus far managing through the cost increases, limiting price increases on shelves.

A few days ago, Target made clear its suppliers should absorb cost increases, not shoppers. "Our expectation is that you will develop the appropriate contingency plans so that we don't have to pass price increases along to our guests," Mr. Tritton said in the Aug. 27 memo, shared by a toy importer.

Target says the memo last week, sent to national-brand vendors that are the importer of record on goods from China, is a part of ongoing communication with its suppliers about the impact of tariffs. "Given the scope of our business and breadth of our assortment, including owned and national brands, we've needed to take a number of steps to manage our business accordingly and keep prices low for guests," said a Target spokeswoman.

Walmart has largely been able to keep prices steady in the wake of tariffs implemented earlier this year, Steve Bratspies, Walmart's chief merchandising officer for the U.S., said at an investor conference Wednesday.

"Our goal is to offset as much as we possibly can, either through negotiation or managing mix," of products available for sale, he said.

The biggest U.S. retailers have more leverage than smaller stores and chains in seeking to negotiate with suppliers and importers to minimize additional costs from tariffs, industry officials say. Importers in turn can seek discounts from manufacturers in China, and the cost of the tariffs may be spread along the supply chain.

"Retailers that have tried to raise prices to make the tariffs pain go away, some of them have been hurt by their consumers," said David French, senior vice president of government relations at the National Retail Federation. "A lot of the smaller retailers have already raised prices -- they don't have a choice."

Retailers are telling investors they are using a variety of tactics to avoid raising prices for consumers.

"We've negotiated price concessions, canceled orders, modified specs, evolved product mix and diversified vendors," Gary Philbin, chief executive of Dollar Tree, told analysts during a recent earnings call. "We are now taking actions to mitigate the recently announced tariff increases and will continue to assess the future impact of these tariffs."

Although tariffs on Chinese goods have been in force for more than a year, consumer goods had largely been spared until Sunday, when the U.S. began levying 15% tariffs on $111 billion in imports including electronics, watches and sporting goods. On Dec. 15, the tariffs will be expanded to cover $156 billion in products including smartphones, toys and videogames.

President Trump has contended that China is bearing the brunt of the costs of tariffs, which he said is pushing Beijing to seek an accord.

"They're having a supply chain that's being absolutely fractured and broken, which is very bad for them," Mr. Trump said Wednesday. "In the meantime, we're making a lot of money," he said, an apparent reference to the tens of billions the government is collecting on the import duties.

Tariffs on some products, such as the washing machines hit last year by tariffs, lead to higher prices for customers because households can't do without the item. Yet consumers are reluctant to pay higher prices for many items, industry officials say.

"For the retail industry in particular, the tariffs are massively punitive because our margins are small and our costs are high," said Wade Miquelon, CEO of Joann Fabric & Craft Stores. "Many of the tariffs are beyond any of the profit that we make."

The Federal Reserve said in its "beige book" economic release on Wednesday that "firms affected by tariffs were typically successful in passing along increases and noted some success in holding on to margins."

Write to William Mauldin at william.mauldin@wsj.com and Sarah Nassauer at sarah.nassauer@wsj.com

Stocks mentioned in the article
ChangeLast1st jan.
EURO / US DOLLAR (EUR/USD) 0.19% 1.17876 Delayed Quote.5.08%
LINE CORPORATION 1.07% 5650 End-of-day quote.5.61%
SEEK LIMITED -2.26% 21.18 End-of-day quote.-6.08%
TARGET CORPORATION 1.56% 127.84 Delayed Quote.-0.29%
THE LEAD CO., INC. 0.30% 338 End-of-day quote.-13.33%
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