It may seem like smaller retailers are facing the greatest challenges right now.
To be sure, many local or mom-and-pop shops are encountering a lot of pressure.
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But some of the largest retailers in the U.S. are grappling with plenty of difficulty, too, and those problems come with a lot of complexity.
While a small business may have to contend with changing local populations, economic uncertainty, and limited product selections, big businesses must deal with this on an international scale.
And they have added pressures, like managing massive supply chains across numerous countries, maximizing operational efficiencies, ensuring consistency across all stores, managing large amounts of inventory shrink, and trying to stay agile.
To say this sounds complicated is a bit of an understatement.
It’s probably more accurate to say these tasks are akin to keeping a massive ship afloat as it navigates rocky shallows at low tide, while other ships try to compete for its trade routes and pirates try to take its resources.
Walmart is working to deal with tariffs creatively.
Image source: Shutterstock
Walmart encounters a new issue
So when you consider the added pressure that tariffs have put on multinational companies, it really puts things into perspective.
Tariffs, or the duties companies pay to import non-domestic goods, are intended to protect stateside businesses by reducing the inflow of international products.
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President Trump has instituted tariffs on some of our biggest trading partners, including a 10% tariff on South Korea, Vietnam and Japan, and a 30% tariff on China (though that number is subject to change).
China has reciprocated with a 10% tariff on U.S. goods.
For companies like Walmart (WMT) , this is bad news.
Walmart is heavily reliant on Chinese goods; Reuters has reported that about 60% of Walmart’s inventory comes from Chinese suppliers, and other estimates put that percentage as high as three-quarters.
Walmart works to combat tariffs
Walmart is so massive that it does have some pricing power when it comes to tariffs.
Many of Walmart’s Chinese suppliers are reliant on Walmart to turn a profit. If Walmart were to suddenly change to a domestic supplier, or pass costs off onto its Chinese suppliers, their business would suffer.
But it’s not this easy, and those changes take time.
So in the meantime, Walmart must work creatively to avoid passing costs onto its customers, who already expect rock-bottom prices at America’s largest retailer.
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One way it’s working to reduce prices creatively is by changing the materials it uses for packaging and other purposes.
For example, in February, the Trump administration set 25% tariffs on steel and aluminum imports.
So Walmart shifted away from the heavy use of aluminum, instead working with other materials exempt from those tariffs.
“We also have suppliers shifting materials from tariff-impacted components like aluminum to fiberglass, where there is no tariff,” CEO Doug McMillion said during the Q1 earnings call in May.
“Our merchants, sourcing team and suppliers are being creative. It’s been impressive to watch our team identify opportunities and adjust.”
Still, McMillon cautioned investors and customers that Walmart isn’t entirely out of the woods.
“We’re positioned to manage the cost pressure from tariffs as well or better than anyone. But even at the reduced levels, the higher tariffs will result in higher prices,” he said.
