Some US stores may actually stand to benefit from Trump’s trade war. While retailers from Target to Macy’s warn that the administration’s escalating tensions with China will hike up prices for consumers, discount and off-price retailers who source their products from other countries say upcoming taxes on Chinese imports will have a minimal effect on prices. Some businesses are even claiming the hikes may actually be a boon to their companies.
In May, the administration raised the tax to 25% on a large list of goods imported from China. The taxes affect items ranging from clothespins to coats to knitted gloves to shoes to glassware. But off-price retailers who source their products domestically and from other countries, like Vietnam, may end up with fewer bruises, Neil Saunders, an analyst at GlobalData Retail, told BuzzFeed News.
TJX Companies (which owns discount chains including TJ Maxx, Marshalls, and HomeGoods) and other off-price retailers like Ross and Burlington “are in an effective position because their buying models are very flexible, because they source from diverse countries,” Saunders said. “Because it’s a flexible model, they sidestep the effect of Chinese tariffs. I’m not saying they’re totally immune from it, but they’re in a better position to avoid the pain of these tariffs.”
TJX Companies CEO Ernie Herrman told investors in February that he expects Trump’s tariffs will impact its range of off-price stores in the short term. But ultimately, he said, it might prove to be an advantage for the company as competitors scramble.
“We’re not probably immune to certain ramifications from a tariff in the [short term],” he said. “However, like anything in our business, we believe longer term, it’s probably going to be a benefit for us because any uneasiness in the market or any chaotic change for the vendor community in terms of them having to bring goods in earlier or allocate differently or resource to different countries, we believe will ultimately benefit us.”
Sucharita Kodali, a retail analyst at Forrester Research, told BuzzFeed News that off-price businesses like TJX may benefit from retailers who loaded up on China-sourced inventory before the tariffs went into effect and may have trouble selling it in stores.
“That leaves TJX in a great place because it’s a buyers market,” she said. “There is more supply than demand. They get the pick of supplies they want. In a world where there is oversupply of inventory, TJX is well-positioned.”
Burlington Stores CEO Thomas Kingsbury told analysts in May that the company is built on “opportunistic buys,” when there is excess supply of merchandise that other retailers can’t sell, in its stores. Burlington Stores, which imports 6% of its orders from China with only 15% of those orders subject to tariffs, anticipates higher prices at other companies will drive consumers to its stores.
“We believe over time, tariffs may cause disruption in the supply chain, which is typically a positive for off-price retailers,” said Kingsbury. “In addition, if prices do go up across retail, this could possibly make value an even more important driver of consumers into the off-price channel.”
Ross Stores chief financial officer Michael J. Hartshorn told investors in May that it’s too early to say with certainty how tariffs will impact the business. He wouldn’t comment on what share of their supply is sourced from China, but he said “the silver lining is we have a flexible business model and can react to the price increases and disruptions like this that historically meant to supply opportunities for off-price.”
Meanwhile, Target chief executive Brian Cornell told analysts in May that the company is “concerned about tariffs because they lead to higher prices on everyday products for American families.” Macy’s said its shoppers will likely feel the pinch of tariffs in some of its footwear and accessories products. Nordstrom anticipates additional tariffs will drive consumer prices up.
Retailers like Ralph Lauren and E.L.F. Beauty said they are reconfiguring their supply chains to minimize the impact of tariffs on consumers. Williams-Sonoma told investors last week it has already moved some of its supply chain outside of China and has begun renegotiating costs with Chinese suppliers. Home Depot said the new round of tariffs will add $1 billion to its costs. Kohl’s, which sources roughly 20% of its merchandise from China, lowered its guidance for the year in part due to the increased tariffs.
Dollar General and Dollar Tree are feeling the pinch as well. Dollar Tree, which sources roughly 40% of its products from China, announced this week it began testing price increases on some of its items. Crystal Ghassemi, a spokesperson for Dollar General, told BuzzFeed News that the company’s plan to mitigate the cost of tariffs include vendor negotiation, product substitution, product reengineering, and diversifying the countries from which it sources its products. But “even with these efforts, we believe our shoppers will be facing higher prices as 2019 progresses,” she said.
As some companies warn higher prices may be coming, it is also possible Chinese companies will absorb the cost of the tariffs while American businesses and consumers come out untouched, said Kodali with Forrester Research.
“There are so many unknowns in this whole thing,” she said. “We know retail is highly competitive and we know Chinese manufacturing is highly competitive, and I think there is a fair case to be made that American companies have not driven as hard of a bargain with China as maybe they could’ve. So we’ll see.”