President Donald Trump’s shifting trade policy is causing headaches for America’s largest retailer.
While Walmart CFO John David Rainey welcomed the recent reduction in tariffs, he said the company is not out of the woods yet.
“Let me emphasize, we still think that’s too high,” he said of the latest rates during Walmart’s earnings call on Thursday.
Walmart says it imports about one-third of what it sells in the US from other countries, namely China, Mexico, Canada, Vietnam, and India, and that cargos are currently flowing.
“There are certain items, certain categories of merchandise, that we’re dependent upon to import from other countries, and prices of those things are likely going to go up, and that’s not good for consumers,” Rainey said.
Rainey also said shoppers are showing signs of being more financially pressured, evidenced by their spending shifting away from general merchandise and more toward food and essentials.
CEO Doug McMillon added that he doesn’t expect shoppers will tolerate additional price hikes on their grocery bills, which would limit the retailer’s ability to shift import costs to other goods in its assortment.
“The first thing that goes through my mind is food inflation,” he said. “We’ve been through a number of years here where prices have gone up on food, and our customers have felt that, and they don’t want any more food inflation.”
He also said he was hopeful that any long-term policy would address foods that the US doesn’t produce in significant amounts, like bananas.
An additional wrinkle for Walmart management is the question of what economists call “price elasticity,” or the change in purchasing patterns in response to changes in cost.
American consumers proved surprisingly resilient during recent years of high inflation, and kept on spending even though prices were climbing.
But Rainey said tariffs make it “more challenging to anticipate demand by item,” since it’s not clear how shoppers will respond to new tariff-related price hikes and retailers are wary of getting stuck holding large amounts of expensive merchandise.
“We’ll watch where our price gaps are,” McMillon said, “but we’ll also watch what customers are telling us and the response that we get from pressure that they’re feeling.”
While that puzzle is a little more solvable with high-turnover items like food, it’s considerably more difficult to predict for seasonal sales events like back-to-school or the holidays — and Walmart has to place those orders now.
And thanks to a quirk of retail accounting, a significant fluctuation in shelf prices could have an outsized impact of the company’s financial results in the coming quarters if it has to make large adjustments to its inventory valuation.
“How do you make a quantity call, and what tariff number do you use?” McMillon asked.
