How should retailers raise prices to offset tariffs?
Walmart and Macy’s last week admitted they will have to raise prices to offset the new and potential tariffs arising from the U.S.-China trade war.
“We’re going to continue to do everything we can to keep prices low. That’s who we are. However, increased tariffs will lead to increased prices, we believe, for our customers,” Walmart’s CFO Brett Biggs told reporters on a conference call following the release of first-quarter results.
Macy’s CEO Jeff Gennette told analysts it would be hard for Macy’s to “find a path” to avoid increasing prices on consumers.
With a 25 percent tariff hitting apparel items, apparel sellers would have to raise prices on average by 2.3 percent to maintain gross margins, according to a Bank of America note attained by The Wall Street Journal. If they can’t raise prices, Bank of America estimated the tariffs could reduce earnings of department stores and apparel off-pricers by 39 percent this year.
An article from the blog of Bob Phibbs, CEO of The Retail Doctor and a RetailWire BrainTrust panelist, from several years ago that explored raising prices following the Great Recession offered a few tips that still largely apply. The suggestions are slightly adjusted:
- Educate employees on the impact of the tariffs. Understanding how tariffs weigh on top of their salaries and benefits, shipping and other underlying costs will help them support and explain any higher prices to customers.
- Do a category report. Look for the category leaders that are most likely to lift profitability.
- Do an item report. Look for the faster moving items that can likely absorb higher prices.
- Decide how much you want to raise your prices. No one would probably notice items under $10 raised by a dollar. Once prices cross from $9.99 to $10 though, people notice, so be careful with that price point — likewise, the $19.99 crossing into $20 and all the $X9 ($29, $39, etc.) crossing into the next level.
- Monitor your sales. Make adjustments.
- China tariffs could force ‘widespread store closures’ and put $40 billion in sales at risk – USA Today
- Bruised Retailers Face More Pain – The Wall Street Journal
- US tariff hikes will force retailers to make tough choices – Business Insider
- Report: TJX could take 15% hit from tariffs – Worchester Business Journal
- China tariffs could force ‘widespread store closures’ and put $40 billion in sales at risk – The Retail Doctor
DISCUSSION QUESTIONS: What tips do you have for retailers large and small considering raising prices to help offset the impact of higher tariffs? What are some common missteps when increasing prices? How vocal should stores be in explaining the reasons behind price changes to customers?