Retailers scramble to craft strategies as the threat of tariffs looms

The survey results: The share of CFOs citing “tariffs” as their company’s most pressing concern shot up 173% after the US presidential election compared to Q3, per The CFO Survey, which is conducted by Duke University and the Federal Reserve Banks of Richmond and Atlanta.

• The share that was most concerned about tariff-adjacent factors such as “inflation” and “non-labor costs” jumped 10% and 8%, respectively.
• Yet even as the prominence of tariff-related worries soared, the overall number pointing to the policy remained well below issues such as “labor quality/availability” and “monetary policy.”

While the survey didn’t break out the results by industry, it seems likely that the number of executives concerned about tariffs would be even higher among retailers given that President-elect Donald Trump’s tariff plans will drive up the cost of products ranging from toys to furniture, per a National Retail Federation analysis.

The situation: Retailers are scrambling to adapt to the shifting trade landscape, even as the exact scope of the changes remains unclear.

• Dollar Tree plans to dust off its 2018-2019 playbook—negotiating lower supplier costs, resizing packages, and dropping items that no longer make financial sense. It also expects to shift suppliers for most products to alternate countries and hike prices on some goods.
• Best Buy is particularly vulnerable to tariffs because the vast majority of consumer electronics products are imported and it’s the importer of record for only 2% or 3% of its inventory. The retailer will bring in some products before tariffs hit and fine-tune its vendor mix, SKU lineup, and promotional and pricing strategies.
• Williams-Sonoma—which has reduced its share of China-sourced goods from 50% to 25% over the past few years—developed a category-by-category plan to reduce its sourcing from China if tariffs increase.

However the retailers seek to adjust, they may still hit some speedbumps, per a Wells Fargo research note. “Inventory management is a trying job at the best of times, but rising tariffs make it even harder. Stocking up on whatever you need sounds easy, but at a time when inventory financing remains dear, that’s an expensive fix.”

Not everyone is concerned: While there is no shortage of retailers concerned about the changes, off-price retailers’ business models may insulate them from tariffs and could even benefit.

• Retailers’ efforts to stock up on inventory could lead to merchandise pileups that enable retailers like TJX to scoop up a broad array of goods at “advantageous prices,” CEO Ernie Herrman said.
• Off-price retailers’ cost advantage may also be magnified if full-price retailers raise prices in the wake of tariffs.

Our take: Shoppers are already on high alert for rising costs—tariffs could push them even further, intensifying price-sensitivity and curbing consumer spending.

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