Walmart, the nation’s largest grocer, is facing a dilemma already from increasing tariffs. All along, it has been eager to double down on its promise to keep prices low. After all, almost 90% of us live within ten miles of a Walmart. This geographical closeness makes Walmart a crucial barometer for millions of consumers. On April 9, Walmart’s CEO Doug McMillon and CFO John David Rainey lamented the harmful effects of tariff policies at an investor day event. While they did speak broadly to the company’s long-term business strategy, they avoided coming out and directly speaking to tariffs.
In a striking reversal, Walmart would subsequently admit that tariffs had changed the course of its business plans. Looking ahead, the company’s executives credited the Trump administration with moving negotiations with China forward. Thanks to this coordinated effort, the Composite Tariff on Chinese imports fell dramatically, from 145% down to a mere 30%. While this is certainly a step in the right direction, Walmart did not mince words in indicating that it would prefer to see these rates go even lower.
Walmart averages a margin of 4%-5%. This already small margin leaves the company little room to absorb the increasing costs of tariffs. Rainey warned investors that higher tariffs would raise prices on valuable products. He reiterated that the company’s bottom line has always been on providing the lowest possible prices to customers.
“We have always worked to keep our prices as low as possible and we won’t stop.” – Walmart
A bright spot in Walmart’s outlook? It has opted not to offer fiscal second-quarter earnings-per-share or operating-income growth guidance due to the unpredictable nature of U.S. tariff policies. This prudent step is completely warranted given the dangerous flip-flop economy we are all experiencing these days.
Joanna Piacenza, a corporate strategy analyst, observed that tariff talks were a major topic of discussion for companies.
“Tariffs are really the only topic that has broken through a really silent stretch of corporate engagement.” – Joanna Piacenza
As Walmart navigates this landscape, there is an inherent risk involved in openly discussing tariff impacts, especially given President Trump’s history of publicly criticizing companies that appear to diverge from his economic agenda. Third, and most importantly perhaps, Trump was speaking directly to Walmart’s concerns about tariffs. He even went so far as to demand that the company not blame tariffs when increasing prices.
“Walmart should STOP trying to blame Tariffs as the reason for raising prices throughout the chain.” – Donald Trump
Given the difficulties that suppliers now face, one still wonders how Walmart’s leadership can even say they plan to maintain low prices for their customers. Rainey articulated this sentiment by stating:
“We’re pleased with the progress that’s been made by the administration on tariffs from the levels that were announced in early April, but they’re still too high.” – John David Rainey
Walmart is still committed to “everyday low prices.” As it recalibrates its sales projections in order to adapt to evolving tariffs, the company is prepared to weather heightened scrutiny. Analysts have pointed out that margins are razor thin and costs are rising. There’s only so long that the retailer can absorb these increased costs before being forced to pass them onto their customer base.
Michael Baker, an industry expert, commented on the delicate balance Walmart must strike:
“Margins are thin, costs are going up, they’re going to eat as much as they can, but at some point the math doesn’t check out.” – Michael Baker
As of fiscal year 2022, Walmart is one of the world’s largest retailers. Its ongoing decisions on price controls and tariffs will most definitely cause big tsunami waves across the entire retail space. The company’s leadership knows it needs to be held accountable to consumers. They are committed to solving those challenges and maintaining their commitment to their customers of low prices.