Siddharth Cavale
4 min read
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By Siddharth Cavale
NEW YORK (Reuters) -President Donald Trump's tariffs are widening the gap between market-leader Walmart and Target, the companies' latest quarterly reports show, underscoring missteps at the smaller U.S. retailer amid economic uncertainty.
Walmart, considered a proxy for U.S. consumer health, said last week that it would have to raise prices to deal with tariffs even as it maintained its full-year forecast. Trump castigated the company, saying it should "eat the tariffs."
Target, by contrast, slashed its annual outlook to account for "the expected impact of tariffs and heightened uncertainty regarding the economy and consumer spending." The company opted not to raise prices, calling it "the very last resort."
Target's annual sales, down for two years, are expected to fall again this year.
"If tariffs remain at the levels today, (Target is) going to have higher costs this year. As an investor it is hard to see how this can play out positively through the year, without increasing prices," said Steven Shemesh, RBC Capital Markets analyst.
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Target said it was negotiating with vendors, reevaluating assortment decisions, changing country of production where possible, adjusting order timing and prices, measures it believes will largely offset exposure to tariffs.
Investors were unconvinced. Target's stock slumped on Wednesday and has lost nearly a third of its value this year - while Walmart's has risen 7%.
Target's problems are long-running.
Its "cheap chic" merchandise did not resonate with buyers in a post-pandemic inflationary environment, where groceries became a priority. Walmart's Everyday Low Price model, which focuses on consistently low prices rather than temporary discounts, has been a strong draw.
Analysts warn 30% tariffs imposed on goods from China would make it difficult for Target to absorb increased costs without raising prices.
"Target should have been more aggressive and quicker in diversifying. They needed a more radical surgery, which didn't happen. They are catching up now but this could have been deeper and earlier," said Craig Johnson, founder of retail consultancy Customer Growth Partners.
Walmart generates a third of sales from merchandise like clothing, electronics and toys - sourced primarily from China, India, Vietnam and others. It has been reducing its reliance on China, where it sources 60% of its discretionary merchandise, but the country still remains its top origin for importing goods.
