Costco Wholesale Corporation discusses the latest casualties of president Trump’s trade war between the US and China.
“At the end of the day, prices will go up on things,” the wholesale retailer’s chief financial officer Richard Galanti told investors. Costco shoppers can expect to spend more on an array of items including bikes, vacuums, furniture and luggage.
“Until this month, there was a fairly modest amount of tariffs and not highly concentrated in consumer goods,” David French, the senior vice president of government relations at the National Retail Federation, told Fortune.
At first, the president’s ire toward China’s trade imbalance with the US manifested itself in his levying tariffs on imported components for assembly in the US, as well as technology. Then, consumer goods became engulfed in the trade war, which were recently raised to 25% from 10% on $200 billion of Chinese goods.
“We did a study on the impact of 25% tariffs on two segments, travel goods and furniture, and found that consumers would pay $6 billion more if they go into effect,” French says. This has created uncertainty for consumers and retailers.
“A 10% extra cost can be contained within the value chain in the short term, by suppliers and retailers taking a cut on margins to maintain end prices,” Johan Gott, a principal in the consumer and retail practice of A.T. Kearney and head of its Trade Wargaming initiative, tells Fortune. “As these tariffs rose to 25% a few weeks ago, there are no margins left to play with and retailers have no choice but to pass on the cost to consumers.”
In addition to increasing product costs, which in turn could slow sales, the president’s escalating tariffs create even more uncertainty for retailers, one of the biggest headaches for any business.
“What’s interesting is it’s hard to predict what the impact is,” Galanti told investors. For example, “we’ve seen strength in patio furniture even with certain tariff price increases,” Galanti said, but those gains could reflect sales rebounding from a decline “because of the bad weather in January and February—and we get into seasons early.”
Costco, currently ranked 14th on the 2019 Fortune 500, isn’t the only big box store struggling over tariffs. Last month, Walmart also announced plans to raise prices because of the trade wars.