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Retailers leery of additional tariffs that would target consumer goods

The potential impact of a new round of tariffs proposed by the Trump administration has loomed large over the retail industry during the past week even as companies like Target and Home Depot have reported strong quarterly sales.

Retailers say they’re keeping a close eye on tariffs — both the tariffs already in place and a potential future round that could cover more consumer goods.

“As a guest-focused retailer, we’re concerned about tariffs because they would increase prices on everyday products for American families,” Target Corp. CEO Brian Cornell said Wednesday while discussing his company’s sales with analysts.

Cornell isn’t worried about Target’s ability to manage the impact on its business, saying the retailer is “continually developing and implementing contingency plans as we learn more and things evolve.”

But Target has been “expressing our concerns to our leaders in Washington,” Cornell said.

The concern being aired by Target and other retailers comes as the Office of the U.S. Trade Representative holds hearings this week on a proposal to extend tariffs to roughly $200 billion of additional Chinese goods. Those additional tariffs, meant to pressure China to change its trade practices, would be on top of tariffs imposed on $34 billion of mostly industrial goods in July, and another $16 billion in tariffs expected to take effect this week. Several retailers have representatives speaking at this week’s hearings on the tariffs.

Dollar General, Five Below, Macy’s, J.C. Penney and Lowe’s have all said in the annual reports they file with the U.S. Securities and Exchange Commission that there’s a risk tariffs could affect their business.

Some, like Dollar Tree, said they rely on products made outside the U.S. About 40 to 42 percent of sales at Dollar Tree stores came from goods it imported, along with 17 to 19 percent of sales at its Family Dollar stores, according to its annual report. Even when Dollar Tree buys from a domestic vendor, some of those products may have been imported, the chain said.

At Home Depot, tariffs already imposed on lumber and washing machines — along with the rising costs of raw materials and transportation — have put pressure on prices, Executive Vice President of Merchandising Ted Decker said while discussing his company’s sales with analysts last week.

“However, as the customer advocate for value, it is our job to work with our partners through the value chain to manage these pressures,” Decker said.

So far the overall impact has been “manageable” and overseas washing machine manufacturers’ plans to open domestic plants should help, he said.

Activity tracker maker Fitbit’s products would be affected if tariffs are extended to another $200 billion of Chinese goods as proposed, Chief Accounting Officer Ronald Kisling said during a call with investors earlier this month.

“We are navigating a number of different paths to reduce or eliminate the impact of the tariff,” Kisling said.

Handbags are also hit by the tariffs, though Tapestry Chief Financial Officer Kevin Wills told analysts fewer than 5 percent of handbags made by its Coach, Kate Spade and Stuart Weitzman brands are made in China.

Outdoor products could also be affected by the additional tariffs, Vista Outdoor CEO Christopher Metz said when releasing his company’s sales.

“Just about everybody in the world” imports helmets from China, Metz said. “But helmets is one of those categories where it’s a safety category and it’s hard for us to believe that our government would want to put regulations and tariffs on a safety product.”

Metz said he thought his company’s efforts to protect its products had been successful in the first round of tariffs, and Vista Outdoor plans to weigh in on the current proposal.

“But clearly, as every other company in the U.S. is reporting, it’s a risk to the business,” he said.

Last week, the National Retail Federation said 2018 retail sales were expected to grow 4.5 percent over 2017, better than the 3.8 to 4.4 percent growth forecast earlier this year, aided by a strong economy that’s made consumers ready to spend.

But tariffs could threaten the rosy outlook, said Matthew Shay, the retail trade group’s president and CEO. Consumer prices likely wouldn’t immediately rise since retailers are stocking up on imported goods before the tariffs go into effect, but that isn’t a long-term solution, and uncertainty around tariffs could take a toll on consumer and business confidence, he said.

“We don’t want to see these economic gains derailed by protectionist trade policy.”

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©2018 Chicago Tribune

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