The higher tariffs imposed on goods from China would result in increased pricves for shoppers, said the world’s largest retailer Walmart Inc on Thursday.
This warning was issued by the company even as it reported the best comparable growth in sale in the first quarter in the last nine years.
There was an instant jump of 4 per cent in the shares of the company to $103.84 in early trade which added on to the 7 per cent gains made by the shares so far this year.
Last week, import tariffs on Chinese goods worth $200 billion was increased from 10 per cent to 25 per cent by the U.S. President Donald Trump. Analysts expect that prices of a broad range of products from clothing to furniture to electronics would increase for US customers because of the move. In retaliation, tariff on $60 billion worth of US goods was increased by China.
The prices for consumers would increase because of the higher tariffs, said Walmart Chief Financial Officer Brett Biggs in an interview. The company would try to reduce the discomfort of higher prices for consumers partly by attempting to source products from countries other than China and coordinating with the cost structure of its suppliers to partly offset the higher tariffs, he said.
The food business of Walmart is likely to be the only business part that would likely be impacted by the increased tariffs, said Moody’s analyst Charlie O’Shea. About 56 per cent of the overall revenue of the company is accounted for by the grocery operation which includes fresh food. “We believe Walmart has the wherewithal both financially and via its vendor relationships to minimize the impact on both itself and its shopping base,” he said.
The company will maintain its “low-price leadership” and “manage costs on an item-by-item basis”, said Walmart’s U.S. Chief Executive Officer Greg Foran on a conference call. However that strategy can be threatened partly because of the increasing cost rivalry from the discount retail chains such as Aldi.
Additionally, some of the suppliers of Walmart which include the likes of Del Monte Foods that provides the retailer with fresh and packaged goods such as the mandarin oranges that are imported from China, have begun to increase their prices which is adding on to the pressure on Walmart.
“It’s not just tariffs. Transportation costs are up, labor costs are up. It’s an inflationary environment,” Del Monte CEO Greg Longstreet told Reuters on the sidelines of a conference. “A lot of that’s going to have to be passed on. The consumer is going to have to pay more for a lot of critical goods.”
No definitive signs of a drop in consumer spending have been seen by the retailer, said Walmart CFO Biggs.
Partly because of rising debt, tariffs and economic uncertainty, it is widely expected that there would be a slowdown of consumer spending in the US this year. A drop in household purchases of vehicles and a range of other goods in April this year resulted in an unexpected fall in the U.S. retail sales. According to many analysts, that indicated a slowdown in economic growth following a period of economic growth and spending in the first quarter driven by growth in exports and inventories.
(Adapted from EuroNews.com)