What are the leading retailers in America discussing these days? Tariffs, and their implications for both retailers and consumers.

This issue was front and center at a recent event in Washington, D.C., attended by major U.S. retailers in early December. The proposed tariffs by President-elect Donald Trump on imports from China, Canada, and Mexico had already created significant buzz.

“Tariffs were the only topic on our agenda,” stated Balika Sonthalia, a partner from the global consultancy Kearney, focused on strategic operations in the Americas, when speaking with YSL News.

Along with immigration matters, tariffs have raised concerns for retailers, as Sonthalia pointed out, stating that “the intertwining of these issues could really distress various sectors.” With Trump consistently asserting that tariffs are imminent—especially in light of recent reports suggesting he might reconsider—retailers and consumers in the U.S. are bracing themselves accordingly.

Retailers are currently assessing “what challenges lie ahead,” Sonthalia added, emphasizing her focus on consumer goods and retail within her role at Kearney.

‘A different kind of inflation’

Estimates indicate that these proposed tariffs could increase costs for the average household by an additional $2,500 to $7,600 annually, according to Jonathan Gold, vice president of supply chain and customs policy for the National Retail Federation.

Ultimately, consumers will bear the burden of any tariffs, explained Darpan Seth, CEO of Nextuple, a firm that assists clients in securing products for retail. Their client roster includes well-known names such as Dick’s Sporting Goods and luxury brands like Kate Spade and Coach.

Seth characterized tariffs as “another form of inflation, just under a different name,” conveying that they would lead to price hikes.

Some consumers will likely postpone major purchases or resort to minor fixes instead of replacement due to rising prices on imported items from specific countries, Seth noted. For instance, instead of a full carburetor replacement in their vehicle, a consumer might opt for a simpler repair.

As Seth pointed out, retailers will have little choice but to raise prices in the short term due to tariff impacts.

Concerns among US retailers regarding tariffs

According to Gold and other industry experts, even though the Trump administration previously threatened tariffs during his first term, the circumstances are different now.

Retailers represented by the National Retail Federation, which comprises both large and small businesses, are expressing significant concern, Gold noted.

“The supply chain is already complicated, facing numerous challenges. Therefore, the introduction of these substantial tariffs is creating further disruptions, leaving many retailers pondering, ‘What should we do now?'” Gold elaborated.

Given the multitude of tariff scenarios that are being evaluated, retailers are strategizing to tackle each possible situation, he indicated.

Proposals include a broad baseline tariff ranging from 10% to 20% for all goods, along with a specific tariff for China set between 60% and 100%. Additionally, there are new threats regarding a 25% tariff for Canada and Mexico, and a 10% tariff directed at China related to immigration and fentanyl concerns, Gold detailed.

Potential consumer impacts due to tariffs

A recent study from the retail federation assessed the likely effects of tariffs across six categories of consumer products: apparel, toys, furniture, household appliances, footwear, and travel accessories.

Gold emphasized that retailers significantly depend on imported products and manufacturing materials to provide a variety of items for consumers. It’s important to note that tariffs are essentially taxes applied to U.S. importers, rather than being imposed on foreign nations or exporters.

The retail federation indicated that while certain U.S. manufacturers might gain from these tariffs, the overall losses experienced by consumers outweigh any benefits derived from increased U.S. production or tariff revenues.

Examples of potential price hikes due to tariffs shared by the retail federation include:

◾ A toaster oven priced at $40 could rise to $48 to $52.

◾ Athletic shoes that cost $50 might go up to $59 to $64.

◾ A mattress and box spring set originally costing $2,000 may see prices soar to between $2,128 and $2,190.

With expectations of rising prices, The retail federation indicated in a study released on November 4 that low-income families would feel particularly impacted by the decreasing spending power.

Gold mentioned that while the retail federation focused on six particular categories, he anticipates that proposed tariffs could significantly affect prices for consumer electronics, pet products, children’s items, and groceries too.

Nevertheless, there is some hope. Financial experts previously informed YSL News that Trump’s tariffs during his first term did not lead to “significantly high inflation.” The incoming administration continues to advocate for the advantages of tariffs.

“President Trump has committed to tariff strategies that safeguard American workers from the unfair actions of foreign businesses and markets,” stated Brian Hughes, spokesperson for the Trump-Vance transition team. “As he did in his first term, he aims to execute economic and trade policies that enhance affordability and prosperity for our country, while also equalizing opportunities for American manufacturers.”

How are U.S. retailers responding to and preparing for tariffs?

According to Neil Saunders, a retail analyst at GlobalData, some retailers are reconsidering their sourcing strategies, while others are developing contingency plans.

The retail federation’s members are working to be ready for both optimal and worst-case situations, Gold noted.

He explained that larger U.S. retailers are better equipped to “manage and adapt their sourcing,” although these changes require time. Smaller local shops and medium-sized retailers do not have as much room to maneuver, raising concerns that some could go out of business due to the tariffs, Gold said.

There are early indications that both consumers and retailers are responding to the potential for price hikes and tariffs. The Wall Street Journal reported that some retailers advertised discounts on items such as electronics, washing machines, and refrigerators on Black Friday in anticipation of price increases due to tariffs. Seth mentioned that sales data from Black Friday and Cyber Monday reflected a surge in purchases within those categories.

Consumers should brace for price hikes

Larger retailers have also cautioned that consumers will see price increases due to tariffs, as noted by Gold. The magnitude of these increases will depend on how soon the tariffs are implemented.

A Walmart spokesperson declined to comment, but in a CNBC interview earlier in November, Walmart Chief Financial Officer John David Rainey indicated that the retailer might be required to raise prices on certain items if Trump’s proposed tariffs are enacted.

“Our model is based on everyday low prices,” he stated during the interview. “However, there may be instances where consumers will encounter higher prices.”

In a December earnings call, Dollar Tree officials mentioned that product prices might rise again because of tariffs. The discount retailer also noted that potential tariffs could alter the variety of products available to consumers at Dollar Tree, as previously reported by YSL News.

The media relations team at Gap, which owns Old Navy, Banana Republic, and Athleta, did not respond to a request for comment.

Sonthalia stated that retailers she encountered at a Washington meeting expressed confidence that they could manage costs by implementing efficiency and pricing strategies if tariffs remained at 10% or below. Otherwise, these costs would likely be passed on to consumers, she added.

Gold emphasized that even if tariffs do not take effect, “the mere threat is already causing some disruptions within the supply chain.” He also mentioned concerns about a possible port strike occurring this month.

Saunders suggested that some retailers view the tariffs as merely a negotiating tactic from Trump.

However, Sonthalia, whose clients range from Fortune 15 companies to small independent retailers across various sectors, including food, pharmaceuticals, electronics, and apparel, believes “the tariffs are definitely on their way.”

“It remains to be seen how extensive they will be,” she remarked.

Consumers are unwilling to pay premium prices for U.S.-made goods

Price sensitivity is prevalent among consumers, who are reluctant to spend what it would require to manufacture many desired items in the United States, according to Lauren Beitelspacher, a marketing professor at Babson College in Wellesley, Massachusetts.

Beitelspacher, who studies the retail sector, pointed out that producing numerous goods in the U.S. is costly due to high labor, production, and facility expenses. Consequently, moving manufacturing back to the U.S. would lead to significant price increases.

“Consumers have a benchmark price for what they are ready to spend on an item, and if prices exceed that threshold, they begin to question whether they truly need the item, particularly if it is nonessential,” Beitelspacher explained.

Furthermore, the U.S. lacks certain raw materials for some products, such as silk, which must be sourced internationally, leading to elevated import expenses, she added.

Beitelspacher believes there is a strong likelihood that large U.S. retailers, along with lobbying groups representing industries such as food, apparel, retail, and electronics, will push back against the Trump administration’s strategies.

Companies face delays in changing manufacturing processes

Moreover, many retailers plan their business strategies six to twelve months in advance, Gold acknowledged, stating they cannot delay decisions until Trump takes office.

Still, retailers and suppliers learned from Trump’s previous term that agility in supply chains is essential, according to Gold. He emphasized that solely depending on China is no longer feasible. While tariffs can serve as “a valuable component of trade policy discussions,” they should not be the only strategy, he advised.

Gold described the overall situation as intricate.

Additionally, “Changing your supply chain is a complex task. It takes months or even years to accomplish,” Gold noted.

Major U.S. apparel and footwear retailers, whom Beitelspacher consulted, reported that they are exploring manufacturing options in countries like Indonesia, which may not be affected by the tariffs for exports.

Shifts to Different Countries Could Impact Product Quality and More

As companies turn to different countries for manufacturing, there may be effects on the quality of consumer products. This is because these countries may have different standards for labor, safety, and quality, according to Beitelspacher.

However, Beitelspacher noted that the increase in business resulting from Trump’s tariffs could present growth opportunities for some developing countries.

On the flip side, there is a risk that overwhelmed manufacturing plants in certain countries might subcontract some of their surplus production to what Beitelspacher refers to as “unauthorized facilities.” These facilities might lack proper oversight or labor regulations, potentially leading to longer hours, inadequate environmental protections, lower pay, and unsafe working conditions for workers.

Beitelspacher emphasized that this could lead to not just environmental issues but also significant human rights concerns.