What’s on the minds of America’s leading retailers? The implications of tariffs and their consequences for both businesses and consumers.

This was a hot topic at a recent event in Washington, D.C., where prominent U.S. retailers gathered in early December. By then, President-elect Donald Trump’s proposed tariffs impacting China, Canada, and Mexico were already well known.

“The sole focus of our discussions was the issue of tariffs,” stated Balika Sonthalia, a partner and leader in strategic operations at the global consulting firm Kearney, in an interview with YSL News.

Alongside immigration regulations, tariffs raise concerns among retailers, who fear the combination could lead many sectors into a dilemma. With Trump affirming that the tariffs are imminent, and reinforcing his stance after a report suggested he might reconsider, retailers and consumers in the U.S. are gearing up for the changes.

Retailers are striving to understand “what realities they will face,” explained Sonthalia, who specializes in consumer products and retail at Kearney.

‘Another way to inflate prices’

According to estimates from Jonathan Gold, vice president of supply chain and customs policy for the National Retail Federation, the proposed tariffs could lead to an extra $2,500 to $7,600 per year in expenses for American households.

Darpan Seth, CEO of Nextuple—an organization that assists retailers in optimizing their product offerings—asserts that any tariffs implemented will ultimately be paid by consumers. Their client roster includes large retailers like Dick’s Sporting Goods and upscale brands like Kate Spade and Coach.

“For consumers, tariffs function like a different form of inflation,” remarked Seth. “They will effectively lead to increased prices.”

If prices rise for imported goods from certain nations, some consumers might delay significant purchases or opt for minor fixes instead. For instance, a person might prefer a quick repair rather than replacing the carburetor in their car, noted Seth.

In the short term, retailers facing tariffs will have no choice but to raise their prices, he stated.

Concerns Among U.S. Retailers Regarding Tariffs

Gold and other industry experts indicate that while the Trump administration previously threatened tariffs on imports during the initial term of the president-elect and implemented some, the current situation is more alarming.

There is considerable anxiety among retailers represented by the National Retail Federation, which encompasses both large and small enterprises, stated Gold.

“The complexity of the supply chain and various existing challenges make any added weight, like these extensive tariffs, truly disruptive, leaving businesses unsure about their next steps,” Gold commented.

Given the multiple tariff scenarios being considered, retailers are now obliged to devise plans for each possibility, he noted.

Current discussions involve potential universal baseline tariffs ranging from 10% to 20%, alongside a specific tariff for China which could reach between 60% and 100%. Additionally, there are new threats of a 25% tariff on imports from Canada and Mexico, as well as a 10% tariff on China connected to issues related to immigration and the fentanyl crisis, Gold outlined.

Impact of Tariffs on Consumers

A study conducted by the retail federation explored the projected effects of tariffs on six consumer product categories: clothing, toys, furniture, household appliances, footwear, and travel items.

Retailers significantly depend on imported goods and manufacturing components to provide a wide array of products, noted Gold. It’s important to clarify that tariffs represent a tax imposed on the U.S. importer, not on the foreign country or the exporter.

The retail federation has indicated that although some U.S. manufacturers might see advantages from the tariffs, the overall financial losses to consumers outweigh any potential benefits to U.S. producers or government tariff revenues.

Some examples of possible price hikes resulting from tariffs include:

◾ A toaster oven priced at $40 could increase to between $48 and $52.

◾ A pair of athletic shoes costing $50 might rise to between $59 and $64.

◾ A $2,000 mattress and box spring set could cost between $2,128 and $2,190.

Increased prices and The retail federation’s research, shared on November 4, highlighted that a decline in spending power will significantly affect families with low incomes.

Gold explained that although the retail federation focused on six specific product categories, he also suspects that consumer electronics, pet supplies, kids’ items, and groceries could see steep price increases due to the suggested tariffs.

However, there is some positive news. Financial experts previously indicated to YSL News that during Trump’s initial term, tariffs didn’t lead to “significantly high inflation.” Moreover, the president-elect’s administration continues to assert the advantages of tariffs.

“President Trump has committed to tariff strategies that safeguard working Americans from the unfair operations of foreign companies and markets,” stated Brian Hughes, a spokesperson for the Trump-Vance transition. “His administration will pursue economic and trade measures aimed at enhancing affordability and prosperity for our country while creating a more even playing field for American producers.”

How are US retailers responding and preparing for tariffs?

Some retailers are adapting their sourcing strategies, while others are devising backup plans, according to Neil Saunders, a retail analyst from the research firm GlobalData.

The retail federation’s members are strategizing for various outcomes, as Gold noted.

Larger U.S. retailers have more options to “shift their sourcing strategies,” but Gold emphasized that such adjustments wouldn’t happen immediately. In contrast, smaller local businesses and mid-sized retailers have less flexibility and may face risks of closure due to the tariffs, Gold indicated.

There are already signs that both consumers and retailers have begun responding to the potential for higher prices and tariffs. For example, during Black Friday, certain retailers promoted products like electronics, washing machines, and refrigerators to encourage purchases before potential tariffs took effect. According to Seth, Black Friday and Cyber Monday sales figures indicated a rise in purchases for these items.

Consumers will see price hikes soon

Larger retailers have warned that consumers should expect higher prices if tariffs are implemented, Gold explained. The degree of price hikes will depend on how swiftly the tariffs are enacted.

A representative from Walmart did not comment, but Walmart CFO John David Rainey stated in an early November CNBC interview that some product prices may rise if Trump’s proposed tariffs are enacted.

“Our pricing strategy is based on offering everyday low prices,” he mentioned during the interview, “but there may be instances where consumer prices will increase.”

During a December earnings call, Dollar Tree executives indicated that the cost of their products might increase again due to tariffs. Additionally, the proposed tariffs could alter the types of products available at Dollar Tree, as earlier reported by YSL News.

Gap’s media relations department, which encompasses brands like Old Navy, Banana Republic, and Athleta, did not respond to a comment request.

Sonthalia mentioned that during a meeting in Washington, retailers expressed they could manage costs by implementing efficiency and pricing strategies if tariffs remained at 10%. Otherwise, she warned that expenses would likely be transferred to consumers.

According to Gold, even if the tariffs are not implemented, “the mere threat is creating some disorder within the supply chain.” He also flagged the concern of another potential port strike this month.

Saunders noted that certain retailers perceive the tariffs as merely a negotiation tactic from Trump.

Clients of Sonthalia, ranging from Fortune 15 companies to small independent stores in various sectors, believe that “these tariffs are surely on the way.”

“The real question lies in how significant they will be,” she added.

Consumers resistant to paying higher prices for domestically made goods

Consumers are focused on prices and are reluctant to pay the higher costs associated with manufacturing many items in the U.S., explained Lauren Beitelspacher, a marketing professor at Babson College in Wellesley, Massachusetts.

The high expenses tied to labor, production, and facility construction make U.S. manufacturing costly for many goods, Beitelspacher noted. Shifting production back to the U.S. would likely lead to “astronomical” price hikes.

“Consumers have a set price they are willing to spend on an item, and if it exceeds that limit, they may reconsider the necessity of purchasing it, particularly if it’s a non-essential item,” Beitelspacher explained.

Moreover, the U.S. lacks certain raw materials, such as silks, which must be imported, adding to costs, she noted.

Beitelspacher believes there is a strong likelihood that major U.S. retailers and significant lobbying groups for sectors like food, apparel, retail, and electronics will oppose the Trump administration’s proposed plans.

Companies need time to adjust their manufacturing processes

Furthermore, Gold pointed out that many retailers make strategic decisions 6 to 12 months in advance, making it impractical for them to delay adjustments until Trump assumes office.

Still, retailers and suppliers learned during Trump’s previous term that they must remain agile in their supply chains. Sole reliance on China has become unfeasible, he explained. Gold acknowledged that while tariffs could play a role in trade policy discussions, they shouldn’t be the sole strategy.

Overall, Gold described the situation as complex.

Additionally, he noted, “Shifting your supply chain is not a straightforward task. It requires months, if not years, to accomplish,” he said.

Major U.S. apparel and footwear retailers that Beitelspacher consulted are exploring alternative manufacturing locations in countries like Indonesia that might avoid tariff impacts for exports.

Shifting Manufacturing to Other Countries May Impact Quality and More

According to Beitelspacher, shifting manufacturing to different countries could lead to a decline in the quality of consumer products. This is because these countries may adhere to different labor, safety, and quality regulations.

However, Beitelspacher also noted that the adjustments prompted by Trump’s tariffs could create economic opportunities for some developing countries.

There’s concern that some overloaded production facilities might secretly subcontract surplus work to what Beitelspacher describes as “unauthorized facilities.” These locations may lack proper oversight and labor regulations, potentially resulting in extended work hours, inadequate environmental safeguards, lower wages, and unsafe conditions for workers.

As Beitelspacher pointed out, this situation could lead to serious environmental issues as well as significant human rights concerns.