Walmart prices will rise — and other retailers may follow
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Walmart's announcement today that it plans to raise prices is expected to open the floodgates for wider retail price hikes.
Why it matters: The world's largest retailer — whose brand is inextricably linked to low prices and affordability — said despite the China trade deal earlier this week it is too late to avoid higher costs for consumers.
What they're saying: "If Walmart is raising prices, it certainly means that other retailers are going to be raising prices as well," Justin McAuliffe, a Gabelli Funds research analyst, shared with Axios.
- GlobalData managing director Neil Saunders told Axios that Walmart's comments help other retailers justify their own price increases.
- "If a low-price focused player like Walmart is putting up prices, it explains why others may follow suit," Saunders said. "Walmart is being honest about this, and it encourages other retailers to have open dialogues."
Between the lines: Walmart CEO Doug McMillon cited the "reality of narrow retail margins," when discussing prices on the company's earnings call Thursday. "Given the magnitude of the tariffs, even at the reduced levels announced this week, we aren't able to absorb all the pressure," he said.
- Consumers could see prices increase as soon as the end of May, "and then certainly much more in June," John David Rainey, Walmart's chief financial officer, said in a CNBC interview Thursday.
State of play: How much prices will rise and what products will be increased will, at least at Walmart, vary by category and which country the products come from.
- All tariffs are creating cost pressure but the largest tariffs on China have the biggest impact, McMillon said, adding "If it's from China, obviously, it will have a higher amount."
- "Well, if you've got a 30% tariff on something, you're likely going to see double digits [in price increases]," Rainey later told Yahoo Finance,
Zoom in: Walmart wants to keep food and consumables prices "as low as we can," he said, noting tariffs on countries like Costa Rica, Peru and Colombia are pressuring imported items like bananas, avocados and coffee.
- "Food prices in the U.S. have gone up in recent years, and our customers have been feeling that all along," McMillon said. "We won't let tariff-related cost pressure on some general merchandise items put pressure on food prices."
- Ram Reddy, chief technology officer at Nagarro, a digital engineering company, told Axios he expects electronics and toys will be key categories where Walmart's prices will increase.
What we're watching: Walmart officials said there is still uncertainty as they don't know the level of tariffs yet, which the bilateral agreements will finalize.
- "We do know that we're probably going to be in a period in the second quarter where we're going to see more markups than normal," Rainey said, noting "it's so important to get inventory right in this environment" to reduce later markdowns.
What's next: McMillon said a reset of costs, driven by actual tariffs paid on imported stock, will play out through the year, and Walmart started to see increases in April, continuing through May.
- While price increases to consumers are expected to "feel gradual," they could be particularly noticeable on seasonal items, McMillon said, noting that the retailer was currently focused on "back-to-school receipts."
- "We'll have seasonal items. It will be higher than they would have been otherwise," he said.
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