Will shoppers pay the price? Retail CEOs weigh impact of Trump tariffs on consumers

Retail CEOs are entering the second Trump administration with a more seasoned approach to potential tariffs, having spent the last few years diversifying their supply chains and refining strategies to mitigate rising costs.

The first Trump administration provided a real-world test run for major retailers, who, now armed with valuable lessons and refined plans, believe they are better positioned to navigate any new economic headwinds.

Supply chain diversification and strategic negotiations

“In the first Trump administration, we saw the first wave of tariffs, and we reduced our China exposure by 50%,” Williams-Sonoma CEO Laura Alber told Yahoo Finance at the World Economic Forum (WEF) in Davos, Switzerland.

In response to the tariffs enacted during Trump’s first term, many retailers have diversified their sourcing channels, exploring alternatives to China, and have also become adept at negotiating with suppliers to reduce prices, and keep costs down.

“[Vendors] will help meet us on the tariffs and because they want to keep the business,” said Alber.

There’s a competitive nature to this. They don’t want to lose the business.

Tariff threats loom large

The proposed tariffs are expected to include a 10% duty on Chinese imports by February 1st, and a potential 25% duty on imports from Mexico and Canada, according to Telsey Advisory Group senior managing director, Joe Feldman.

He also noted that if these proposed tariffs are implemented, retailers will most likely be forced to increase prices within three to six months.

For Williams-Sonoma, China currently makes up about 25% of its sourcing, while 81% of its merchandise comes from other parts of Asia and Europe.

Furthermore, they have also begun manufacturing furniture in the US, which Alber has described as “a huge advantage” when trying to get made-to-order furniture to customers quickly.

Apparel giants ready to adapt

Apparel giants Ralph Lauren and Gap have also been actively diversifying their supply chains since the previous Trump administration.

Ralph Lauren CEO Patrice Louvet stated that their reliance on China for sourcing has gone from over 50% to low to mid-single digits, as noted in an interview with Yahoo Finance at the WEF.

He added that the company has planned for more tariffs and is prepared to navigate the “more volatile environment” ahead.

Similarly, Gap CEO Richard Dickson, also speaking to Yahoo Finance at the WEF, said that less than 10% of the company’s products now come from China, with the rest of its supply chain located in Southeast Asia, Central America, Europe, and India.

“We continue to develop even new markets for product development,” Dickson added, emphasizing the company’s focus on value.

“It’s our job to figure out the value proposition and make sure that we present our consumers with the best product at the best price, with the best execution,” he said.

Will consumers bear the brunt of price hikes?

It remains to be seen how consumers will respond to potential price increases. Ralph Lauren’s Louvet acknowledged that new tariffs “likely translates” to “higher prices for consumers.”

However, unlike 2018 when Trump implemented the initial wave of Chinese tariffs, inflation-weary shoppers may be less willing to absorb any new price hikes, according to William Blair analyst Dylan Carden.

“Inflation was a huge issue for so many years,” Carden said at the ICR conference earlier this month in Orlando.

He estimated that a 25% duty on apparel would translate to a 5% to 10% increase in consumer prices.

Furthermore, Carden stated that the retail industry is one “with no pricing power,” adding that “Taking 5% to 10% price increase on a period in which you’ve grown price already 5% to 8%, that gets a little more difficult.”

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